Globalization and National Financial Systems

Abstract

The volume is divided into five
\n traditional areas of finance: the macroeconomy, banking,
\n securities markets, pension issues, and regulations. Four
\n cross-cutting messages emerge. First, the erosion of
\n national frontiers by trade, tourism, migration, and capital
\n account liberalization means that residents of all countries
\n have substantial financial assets, and often liabilities
\n denominated in foreign currencies at home or abroad. Any
\n analysis of national financial systems must take this into
\n account. More important, this factor constrains
\n governments' use of macroeconomic and financial policy
\n and may contribute to economic fluctuations. Second,
\n individuals and firms benefit substantially from the
\n improved risk and return menu associated with global
\n diversification. Diversification is of particular importance
\n in developing countries where the lack of size and diversity
\n of the national economy results in instability in the value
\n of production. Third, the small size of most developing
\n countries limits the efficiency and quality of financial
\n services: banking, equity markets, and pensions. Thus
\n cross-border provision of financial services, one facet of
\n globalization, has potential benefits for small economies.
\n Fourth, taking full advantage of the opportunities presented
\n by globalization and minimizing its costs depend on
\n effective regulation and supervision to ensure good quality
\n information, transparency, market integrity, and prudent
\n investing by banks and pension funds.