Volume 45 Number 177,
April-June 2014

The Challenge of the Twenty-First Century: Regulating the Global Financial System, Alicia Girón and Eugenia Correa (coords.), Mexico, iiec-unam, 2012.

This book focuses on the current need to regulate international financial institutions, in contrast with the period from 1944-1971 when there was relative stability in the international monetary system and no major financial crises. However, following this time period, there was a series of destabilizing financial events. One of the most significant was the suspension of the convertibility of the dollar into gold. The devaluation of the international equivalent in 1971 ushered in changes in regulating the monetary and financial system, as rules became more lax.

As the coordinators of this book write in the introduction, from this moment forward, national financial systems began to go international through worldwide circuits. Financial globalization grew on the base of financialization and with this, the shadow or parallel financial system.

In recent years, the main feature common to the recurring financial crises has been that they are controlled by the lender of last resort. This means that national governments will use public debt to rescue financial institutions in trouble. This action compromises future public revenue and transforms social and economic priorities in favor of the interests of financial agents.

The last major crisis in the United States in 2008 saw the bankruptcy of major American and European banks, the result of financial deregulation and liberalization over the past decades, together with lax regulations that encouraged financial innovation, characterized by the appearance of diverse financial instruments and off-balance sheet transactions, reason enough to spur the current crisis. It is now time to implement orderly regulations for the various activities carried out by actors in financial markets.

The book is made up of nine chapters, linked by the idea that it is time to re-regulate the international financial system. In the first, Samuel Lichtenztejn highlights the need for new regulation and speculates as to who could be the architect. In response, he reflects on possible actors that might assume a hegemonic role in creating new regulation.

In the second chapter, Eugenia Correa writes, “public debt with monetary sovereignty is not a liability, but rather an essential component in ensuring financial profitability.” However, during the crisis, the idea of fiscal austerity became a more popular solution, despite the poor outcomes experienced in Latin America for decades under the predominance of policies inspired by the Washington Consensus.

In the next chapter, Jan Kregel describes the need to implement adequate anti-monopolistic regulations to regulate the size of banks and speculation. This would also limit the threat of a systemic failure, given the limited size of banks, and would resolve the problem of banks that are too big to fail.

The fourth chapter, by Alicia Girón, points to the importance of regulating the shadow or parallel financial system as a measure to prevent financial instability, a guarantee for economic growth and balance between banking and non-banking institutions.

The fifth chapter, by Marcia Solorza, reflects on proposals surrounding new regulation to mitigate the social costs of the crisis. Although crises are inherent to the capitalist system, this does not mean that they cannot be managed to ameliorate systemic risk. It is therefore indispensable that the governments of emerging and developed countries, as well as supranational institutions and private investors adopt measures to redirect the capital accumulation regime.

In the next chapter, Sergio Cabrera reflects on financialization and its overall effects on the economy, pointing out that financial systems have been unable to drive the growth of the real economy. Currently, financial systems have only benefited large corporations, generating greater inequality and weakening the democratic system, especially in Latin America.

In the seventh chapter, Alma Chapoy ascertains that the reason behind the global financial crisis was the lack of adequate financial regulatory and oversight measures. In light of this problem, there are diverse proposals from various fields to reform the international financial system, and the author provides a clear and detailed summary and analysis of these proposals.

In the eighth chapter, Jiang Shixue evaluates the effect of the global financial crisis on China, and what measures this nation adopted to deal with the issue. The author then analyzes China’s proposal for reforming the international financial system, and the consequences of the potential appreciation of its currency, the renminbi.

In the last chapter, Violeta Rodríguez analyzes the hypothesis that debt in Mexico in recent years became unsustainable as a result of financialization, analyzing statistical data to demonstrate this idea and using the developmental stages approach proposed by Paley.

In summary, this book emphasizes that it is time to transform the current regulatory framework of the international financial system. Although true that crises are inevitable, their effects can be less disastrous than what we are currently dealing with. It is therefore urgently necessary to push for this change, and this book is part of this need.

Aderak Quintana
Universidad Autónoma de Zacatecas

Published in Mexico, 2012-2017 © D.R. Universidad Nacional Autónoma de México (UNAM).
PROBLEMAS DEL DESARROLLO. REVISTA LATINOAMERICANA DE ECONOMÍA, Volume 48, Number 191, October-December 2017 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: Nov 13th, 2017.
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