Volume 44, Number 173,
April-June 2013

The Financial System, Global Imbalances and Regulation , Alma Chapoy and Alicia Girón, 1st Edition, Institute of Economic Research - unam, 2011.

The topic addressed in this book is of vital importance to financial economic studies because it provides a greater understanding of recent events in the international financial crisis. It highlights the relevance that rebuilding financial circuits and re-establishing order in the international financial system would have for global economic stability. However, this last task is quite complex given the magnitude and depth of the crisis.

Rebuilding the new international financial order should not overlook the profitability dispute, because banking and non-banking institutional investment activities have diluted financial regulations, reconfiguring the current financial space. In this context, the spread of ideas under the market economy theory that predominated in financial institutions led to the imposition of these ideas in all countries, obliging them to deregulate and liberalize the financial system in order to guarantee greater flows of resources, essential to achieve macroeconomic stability. Even so, this idea has been seriously thrown into doubt with the crisis, but the planning of policies to launch new regulation and oversight is still far off.

The authors propose that the crisis produced various interventions by central banks in order to repair economic damage and save bankrupt financial institutions, which restructured capital flows on the international level. Although these measures have decreased global imbalances, problems in the international monetary system persist, especially due to variations in the dollar, the currency in which the majority of international reserves for many countries are held.

We should remember the causes of the current crisis, which date back to the years before the collapse of the Bretton Woods system (1971-1973), when the convertibility of the dollar into gold was suspended, ending the international monetary system based on equivalents set by the International Monetary Fund and the convertibility of gold for official holdings in dollars. The collapse of the system also gave rise to floating exchange rates, deregulation and financial liberalization. All of this put an end to a system that was proposed as an objective of economic development and financial stability.

The end of this system has led to a series of currency, external debt, banking, payment balance, etc. crises, producing international financial stability. The international financial system went from being regulated to being unregulated and liberalized, an effort led by the governments of industrialized countries and imposed by multilateral bodies. In this context, the need to apply effective oversight and regulation of financial circuits on the global level has once again become important.

In order to present the central theme of the book, the authors divide the text into three chapters. The first addresses measures to take on the crisis and efforts to repair financial systems, recognizing that the origin of the crisis is in large part due to lax and fragmented financial regulation, which brought with it a strong accumulation of external imbalances. That is why improved regulation, oversight, financing mechanisms and international cooperation will be necessary to prevent future crises.

The second chapter discusses global imbalances brought on by the international monetary system, as well as their repercussions on the world economy. This section highlights that financial crises subsequent to the collapse of the Bretton Woods Agreements have been characterized by large differentials in nominal interest rates that set off big short-term capital flows. This increased vulnerability to crisis, currency volatility, the chance for bubbles to form and limited the freedom to exercise monetary policy. Despite these problems, reforms to the global currency exchange systems and the creation of an international reserve no longer centered on the dollar will take time.

The third chapter concludes with the idea to implement new financial oversight and regulation, because the magnitude of the crisis has made clear the need to build common financial measures. These measures would provide proper protection against systemic risk, as well as mitigate the effects of economic contraction. The application of these measures would imply a transition to a new international financial system.

Finally, it should be emphasized that this book offers various responses to development and trends in the international financial crisis. It also raises the question as to how to avoid a repeat of the circumstances that led to this crisis. It is a difficult question to answer and will surely produce more uncertainties. We can be sure, however, that by the end of this book we will have more tools to venture a response.

Aderak Quintana
Doctoral Student in Economics at the Department of Economics – unam

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Published in Mexico, 2012-2017 © D.R. Universidad Nacional Autónoma de México (UNAM).
PROBLEMAS DEL DESARROLLO. REVISTA LATINOAMERICANA DE ECONOMÍA, Volume 49, Number 192, January-March is a quarterly publication by the Universidad Nacional Autónoma de México, Ciudad Universitaria, Coyoacán, CP 04510, México, D.F. by Instituto de Investigaciones Económicas, Circuito Mario de la Cueva, Ciudad Universitaria, Coyoacán,
CP 04510, México, D.F. Tel (52 55) 56 23 01 05 and (52 55) 56 24 23 39, fax (52 55) 56 23 00 97, www.probdes.iiec.unam.mx, revprode@unam.mx. Journal Editor: Alicia Girón González. Reservation of rights to exclusive use of the title: 04-2012-070613560300-203, ISSN: pending. Person responsible for the latest update of this issue: Minerva García, Circuito Maestro Mario de la Cueva s/n, Ciudad Universitaria, Coyoacán, CP 04510, México D.F., latest update: Feb 23th, 2018.
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