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The following article was published in our article directory on December 24, 2010.
Learn more about SpinDistribute Article Distribution System.
Article Category: Business
Author Name: Amanda xzh
The events of the past two years tells us that the domestic financial system to take into account international risk, while the framework of the global financial system also needs to be national economic and financial behavior of the external effects into account. Both with each other, interact, are indispensable.
The most developed countries, central banks are now increasingly recognized that, even with a flexible exchange rate regime, a stable currency, does not mean that the financial system is bound to stability. Ireland, Greece and other eurozone members have finally awaken to the truth, a single currency and a unified monetary policy may be beneficial for a large country, but for the peripheral countries, are not necessarily useful. The face of asset price bubbles and financial crises, currency depreciation by individual Member States can not solve the dilemma. In other words, do not take into account is fixed or flexible exchange rate system, to maintain monetary and financial stability, you need the central banks, regulators and the Ministry of Finance for their tripartite cooperation. If no financial cooperation mechanism, when the deficit country into financial and fiscal difficulties when they can not do anything.
What are these events like the Asian inspiration? First of all, compared to Europe, Asia, the financial system is relatively simple, in the financial integration process, at least 30 years later than in Europe. I believe that ultimately the European friends to resolve the debt crisis, but the pain they experienced sound the alarm to the Asian regional financial integration process must be cautious. Without a well-designed mechanisms for financial cooperation, regional central banks and regional regulatory agencies, the Asian regional currency unit will not produce, can not even produce a large response to the crisis.
Second, the single currency as the world's reserve currency has great risks. As experienced in the United States, the reserve currency country's central bank will face Triffin dilemma, in order to provide liquidity to the world, central banks have to maintain the current account deficit. In the short term, it is useful, but in the long run, will create unsustainable imbalances.
In this regard, our only solution is to manage the global reserve currency arrangements, the provisions of the global liquidity demand, the reasonable level of money creation. As previously discussed, the national currency stability on the premise that has the world's central banks, global financial regulators and global financial cooperation mechanisms. As we all know, we are from these three conditions are very far away. The question now is, constrained global supply of hard currency budget is what? How to curb the currency in circulation, the continuous depreciation of the currency relative to the trend of commodity?
The root causes of the debt crisis led to Europe than the U.S. subprime mortgage crisis. The former is due to the lack of a unified single currency area of financial coordination mechanism. The latter is due to Broaden the shadow banking system, the shadow banks can create credit and will not significantly affect the monetary and financial stability. But once the system collapsed, the entire society will suffer. In other words, through the shadow banking system, financial sound designers have created a great all-round prosperity during the financial, followed by the collapse of the Minsky period (Lehman Brothers).
All that has happened to us a profound lesson, the scope of macro-prudential supervision in the traditional banking system on the basis of further expansion. U.S. Financial Stability Oversight Committee (FSOC) the right to monitor the relevant institutions to carry out the shadow banking obligations. Risk Committee, the European system, there is no such powers.
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