The Difficult Relationship between Global Finance and National Monetary Authorities
The relationship between financial markets and monetary authorities is like the one between a tiger and an animal trainer: the latter must act with intelligence and caution in order to avoid getting mauled. Beyond the metaphor, in the context of globalization the "tigers" are the global financial institutions who operate simultaneously on bond, stock and exchange markets around the world, and their "tamers" are treasury ministers, central banks and market regulation authorities. Due to the global nature of markets and the national jurisdictions of monetary authorities, the confrontation between tigers and tamers is all the more complex and requires stronger international cooperation. This book critically reviews episodes of financial turbulence of the last 15 years and the related economic literature; it offers a clear analysis of monetary authorities and market forces goals and strategies, examines their modes of interaction and attempts to identify under which circumstances, situations of market tension have degenerated into full-fledged financial and foreign exchange crises or have been successfully contained.
Introduction - Part One : The Tigers, the Tamers, the Circus - I. The vicissitudes of a difficult relationship - II. Global finance: customs and conventions - 1. At the origins of financial globalisation - 2. Goals and strategies of global players - 3. Speculation - 4. Valuation and management of risk - 5. The conventions of the global market - 6. Failures of the global market - III. The monetary authorities: goals and strategies - 1. National monetary authorities - 2. International monetary authorities - IV. The political economy of the exchange rate - 1. A multiform nature - 2. A global market - 3. Choosing the exchange rate regime - 4. What to do? - Part Two: The Global Financial System between Crises and Reforms - V. The crises of global finance - 1. What crises - 2. Does globalisation cause crises? - VI. In search of international monetary and financial stability - 1. The antecedents - 2. The reform of the international financial architecture - 3. Will the architecture ensure stability? - Part Three: When the Tigers Were Tamed - VII. A cage for the dollar: the Plaza and the Louvre Agreements (1985-87) - VIII. The seven-year war of the French franc (1991-98) - IX. The resistible rise of the yen (1995) - X. Double play in Hong Kong (1998) - XI. A safety net for the euro (2000) - XII. How was it possible? - Part Four: Epilogue - XIII. The golden middle course - 1. Summing up the arguments - 2. A glance at the present - 3. A glance at the future - 4. On the golden middle course - 5. Keeping the tigers quiet.
Fabrizio Saccomanni teaches Economic Policy
at the Catholic University of Milan.