Financial Crises and Recession in the Global Economy, Second Edition

Financial Crises and Recession in the Global Economy, Second Edition

Roy E. Allen

This timely and authoritative book explains the rise and fall of economies in Asia, Central America and Europe since 1980 and discusses these crises in the context of continuing economic globalization. This updated and fully revised edition includes a detailed account of the Mexican crisis of 1994–95, the Japanese crisis which has worsened in the late 1990s and the Asian crisis which emerged in 1997. Professor Allen discusses the impact of new uses and forms of money, and new financial flows such as electronic monies and offshore financial markets.

Chapter 3: New Uses and Forms of Money, Monetary Velocity, and Wealth Transfers

Roy E. Allen

Subjects: economics and finance, financial economics and regulation, international economics


Page 57  3. New Uses and Forms of Money, Monetary Velocity, and Wealth Transfers  Structural changes in the global economy provoke other structural changes, as is true of most evolving systems. In Chapter 1 it was argued that advances in information  technology and government deregulation provoked the rapid expansion and globalization of financial markets. Because of their ‘marriage’ with the communications  revolution, financial markets have more quickly expanded and became globalized than markets for merchandise and non­financial services. Analysts including Peter  Drucker were emphasizing as early as the mid­1980s that the evolving financial markets had taken on a profit­seeking life of their own, quite independently of the  markets for merchandise and services (Drucker, 1985–6). For example, by the mid­1980s the value of trading on the London Eurodollar market was 25 times the  value of world trade in merchandise and services. Eurodollar deposits and trading were non­existent two decades earlier.  The expansion and globalization of finance allowed Eurocurrency, which is currency used outside its home country, to become a dominant new money form in the  1980s. Continuing advances in technology and international payment systems are now allowing even more exotic new money forms. Chapter 1 documents the rise of  emoney, virtual money, and other ‘quasi­moneys’ that are now being swapped with more traditional ‘real money’ as electronic payment systems expand. The creation  and use of these new money forms has allowed an explosion of financial transactions. In the US payments systems alone, the Federal...

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