Pros And Cons Of Financial Globalization

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With the World becoming more globalized and corporations interacting with one another on a daily basis, thanks to the Internet, global finance and international financial investment have become the standard on how companies and countries do business. Two of the main reasons economists push for economic globalization are to reduce policy barriers to trade and investment in the public sector, and to reduce costs on transportation and communication in the private sector (). One of the main ways that transportation and communication costs have lowered is through technological improvements and progress in recent years. The Internet has cut communication costs from $244.65 to $3.32 from the early 1990’s to today (). The world has seen a large push…show more content…
The most prevalent risk being that these agents that are creating a financially globalized world can cause huge financial crises’. When the government liberalizes the countries financial system to enter other markets, it now goes through market discipline by foreign and domestic investors. Having foreign and domestic investors monitoring the countries economy can generate a crisis when fundamentals deteriorate (). Secondly, the possibility of imperfections in international financial markets can also lead to a crisis. It could generate speculative attacks, crashes, herding behavior, and generate bubbles. This could happen if investors think the exchange rate of a country is unsustainable and speculate against that currency, leading to a self-fulfilling balance of payments crisis (). Even with these agents in place, there still are barriers to a fully financial globalized world. One barrier that has been discussed recently is the existence of different currencies and the large fluctuation in the exchange rates between them. Several tests have been conducted to see what affects a common currency would have on a countries economy. The gravity model, (which eliminates one standard deviation in exchange rate variability from its mean of 7% to zero) shows trade between two countries rises by 13% (). The test also demonstrated…show more content…
The FBI believes that Bitcoin allows transfers of illegal substances and other goods and is hard to regulate. One clear example is the Silk Road, which was a black market for illegal drugs. The FBI seized $28.5 million in Bitcoins when they Shutdown the Silk Road this past year. The Chinese Central Bank issued a warning in December 2013 about the risks of using Bitcoins and cautioned financial institutions not to deal with companies using bitcoins. Once this announcement was made BTC China (the worlds largest Bitcoin exchange) said they would no longer accept Yen deposits. This affected investors across the world due to bitcoins prices plummeting from the once valued $1200 each to $500 today. Bitcoin has also seen opposition from economists like Paul Krugman and Brad DeLong who believe it is a flawed idea and question why it should act as a reasonably stable store of value or whether there is a floor on its value (). Others believe that it acts as a threat towards the Federal Reserve System and other central banks, but that it is a good thing because it makes them to operate sound
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