Moving Money: Banking and Finance in the Industrialized World

Moving Money: Banking and Finance in the Industrialized World

Moving Money: Banking and Finance in the Industrialized World

Moving Money: Banking and Finance in the Industrialized World

Synopsis

Daniel Verdier's analysis of how politics influences financial systems focuses mainly on the history of banking since 1850. Verdier shows that contrasting national political institutions have led to discrete regulatory policies, and thus, different financial structures. He asserts that national political systems can counter the convergence that the market dynamic would otherwise impose. Illustratively, countries with decentralized institutions tend to have higher levels of financial regulation and less mobile capital.

Excerpt

Politicians strut and fret their hour upon the stage, and then are heard
no more. The real moving forces in the development of the economic
and financial systems lie elsewhere. The Banker April 1996, 96.

This book is about moving money within and across countries. It raises the following question: are the few percentage points of my income that I save each month lent to a firm in my neighborhood or do they end up refinancing the short-term debt of the Republic of Mali instead? The answer to this question does not depend on technology, for, since the telegraph was invented, money has had the capacity to move to almost any urban area in the world at the speed of electromagnetic waves. Nor is the answer more likely to be found in economic reasoning. The local firm and the foreign government, holding riskconstant, will pay the same interest on the sums they borrow. The answer, instead, is political. My savings are more likely to help fund production in my local industrial district if I live in Germany, Italy, Canada, or the United States, but to end up in Timbuktu if I live in Britain or France. Mobility of capital reflects the degree of centralization of the state. It is the structure of the state that determines the outreach of the [great go-between,] Bagehot's phrase for Britain's financial system, to which he ascribed the responsibility for moving money.

Many books are written on moving money, cross-border flows, and the mobility of the [K] factor–capital. But while most books associate capital mobility with global financial flows, currency markets, and direct foreign investment, the present work makes the unusual claim that capital mobility begins at home, between cities, between regions; mobility across districts is a prerequisite for mobility across countries.

It is easy to forget in these days of global market expansion that financial systems are nested in the politics of their respective nation-states. Irrespective of whether the state intervenes or not in the allocation of credit, whether politicians strut, fret, or are heard no more, politics is omnipresent through its institutions. The reason is that markets are not neutral, but . . .

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