The International Financial System and the Developing Countries

Since the outbreak of the global financial crisis, a series of currency swap arrangements among central banks have been reached, and many short-term ad hoc mechanisms have been later transformed into permanent institutions, with the decentralized role of the USD and increasing significance of other currencies. It is important to note, however, that currency swaps by Western countries are generally not intended to reform but to maintain stability of the U.S.-dominated international financial system and the USD hegemony. The comprehensive currency swap arrangements made among six major developed economies since the financial crisis exemplify their resistance to the international financial reform. Meanwhile, developing countries have also laid out their own blueprints, highlighted by China’s currency swap arrangements with 33 foreign central banks and the accelerating RMB internationalization. The currency swaps promoted by the People’s Bank of China (PBOC) between the RMB and other currencies would inject supplementary liquidity to a turbulent market and offset impact from the selective currency swaps of the U.S. Federal Reserve, thus proving beneficial to developing countries. While such currency swaps are far from replacing the IMF’s role in stabilizing the global financial market, they are posing both challenges and new opportunities to the reform of the international financial system.

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Deepening Integration

10.1093/oso/9780198797173.003.0003 ◽

2017 ◽

Author(s):

Yilmaz Akyüz

Keyword(s):

Emerging Economies ◽

Financial Integration ◽

Foreign Currency ◽

Financial System ◽

The United States ◽

Bank Loans ◽

Capital Inflows ◽

Resident Participation ◽

International Financial System ◽

Private And Public

After recurrent crises with severe consequences in the 1990s and early 2000s EDEs have become even more closely integrated into what is now widely recognized as an inherently unstable international financial system. This chapter discusses the factors accelerating global financial integration of EDEs, including monetary policies in major advanced economies, notably the United States. It examines capital inflows and outflows, external balance sheets, the size and composition of gross external assets and liabilities, distinguishing between equity and debt, private and public sectors, local currency and foreign currency debt, bond issues and bank loans, and cross-border and local lending by international banks. It provides data and information on the currency composition of external debt, and non-resident participation in domestic financial markets of emerging economies. These are used to identify the changes in the depth and pattern of integration of emerging economies into the international financial system since the early 1990s.

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