Conclusion

The Global Financial Crisis that took place in 2007–9 was the product of both long-term trends and a specific set of circumstances. In particular, the thirty years preceding that crisis had witnessed a refashioning of the global financial system, which was, itself, a reaction to that which had emerged after the Second World War. Over those thirty years competitive markets gradually replaced governments and central banks in determining the volume and direction of international financial flows. The interaction within and between economies took place on a daily basis through the markets for short-term credit, long-term loans, foreign exchange, securities, and a growing array of ever more complex financial instruments that allowed risks to be hedged whether in terms of interest rates, currencies, exposure to counterparties, or other variables. This was a period of great innovation as new financial instruments were created in order to match the needs of lenders for high returns, certainty, and stability and those of borrowers for low cost finance and flexibility in terms of the amount, currency, and timing of repayment. Nevertheless, governments remained heavily involved through the role played by regulators and central banks, generating confidence in the stability of the new financial system. That confidence was destroyed by the Global Financial Crisis of 2008 and had not been rebuilt by 2020.