Sources Of And Reforms For International Financial Instability

2030 WordsOct 21, 20149 Pages
Sources of and Reforms to International Financial Instability Over the past two decades, the health of the global economy has been periodically threatened by financial instability. What could be described as a ‘boom and bust’ cycle since the end of the Bretton Woods monetary system in 1971 has led to several significant economic downturns, the most recent being a financial crisis in the late 2000s. Much of the last several decades’ financial instability originates from expansionist monetary policies that promote financial risk. Several major sources of systemic international financial instability stand out: global trade imbalances, lax monetary policies, and a lack of capital controls. However, while instability is commonplace, mitigating much of the risk in today’s unstable and globalized system is not unattainable. While tighter regulation alone cannot prevent all types of risk, it is necessary in constructing a more stable financial system. Banning risky financial practices, reinforcing capital controls, and limiting the sizes of banks are all needed components to enhancing global financial stability. Acknowledging the inherent risks of globalized finance, an improved financial system should also artificially limit risk by encouraging states to implement a tax on cross-border financial transactions. Processes of globalization have increasingly accelerated the interconnectivity of financial systems. As global systems have become more interdependent, risks now “transmit

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