International Finance and Financial Policy

By Hans R. Stoll | Go to book overview

22
The Global Markets: Where Do We Stand?

DAVID E. BODNER

The arrival of double-digit inflation, floating exchange rates, and, subsequently, highly volatile interest rates set the stage for the globalization of finance that has been the subject of so many conferences in the late 1980s. Behind these developments was the gradual breakdown of the stability of the international financial system during the 1970s. Some of these--and their extension into the 1980s--reflected economic and political adjustments outside the control of any of the players involved. But much of the instability we have witnessed is rooted in the failure of national governments to pursue domestic policies that could have brought a measure of stability to the international system. The consequence has been unprecedented fiscal and trade imbalances, exchange rate volatility, interest rate volatility, and even stock market volatility--all of which have invited the development of the new instruments and the global financial networks that now surround us. Indeed, the failure of governments to take appropriate domestic action has left them forced to rely on the international markets to finance their errors and consequently has greatly impaired their ability to act forcefully about the dangers many of them believe lurk in these markets.

In looking at the spread of global markets, I want to note first the role of the foreign exchange markets as a facilitating instrument. One of the keys to global markets is communications and it was the growth of foreign exchange trading around the world that provided a major impetus to the establishment of those networks. As recently as 15 years ago there was no direct international dial telephoning from most of the Far Eastern centers and it was the demand from banks and brokers for communications for foreign exchange and money market trading that led to the needed huge investments in telecommunications infrastructure by governments and private companies. At the same time, the expan

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