This chapter considers the global financial system by focusing on its two most significant parts. Although they will be treated separately for analytical purposes, they have evolved in tandem and influence each other. We will look at the international monetary system (IMS), which governs how one national currency is exchanged for another, and the global credit system, which determines who gets to borrow money and on what terms. Both systems have undergone dramatic changes since they were established in the mid-1940s. The IMS has evolved from a system of fixed exchange rates to using floating exchange rates. Recently, a number of states have abandoned their national currencies in favour of regional currencies, for example the euro. In the global credit system, the creation and supply of credit has moved from being the responsibility of public authorities (governments) to being provided by corporations. In addition, advances in IT and the deregulation of financial flows have resulted in much more rapid transfer of capital across state boundaries. The consequence of these developments is that many states, even the most powerful, are increasingly sensitive to market fluctuations.
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- The Global Financial System
- Macmillan Education UK
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- Chapter 8