Table of Contents

Regional Currency Areas in Financial Globalization

Regional Currency Areas in Financial Globalization

Edited by Patrick Artus, André Cartapanis and Florence Legros

This book is an up-to-date, authoritative and comprehensive analysis of the key issues and challenges facing regional currency area projects in the context of financial globalization. The authors focus on several central issues that emerged during the experiences of the 1990s and 2000s: exchange rate regimes and optimal currency area theory; exchange rate regimes in emerging countries, international capital markets and regional currency areas; EMU and the euro; exchange rate regimes in Central and Eastern Europe, Asia and Latin America; dollarization and the coordination of macroeconomic policies in the presence of regional currency areas.

Regional Currency Areas and International Financial Architecture in Financial Globalization: An Introduction

Patrick Artus, André Cartapanis and Florence Legros

Subjects: economics and finance, international economics, money and banking

Extract

Regional currency areas and international financial architecture in financial globalization: an introduction Patrick Artus, André Cartapanis and Florence Legros THE CHALLENGES ARISING FROM FINANCIAL GLOBALIZATION Theoretically, the globalization of financial markets is likely to generate an efficient allocation of resources on a worldwide scale. In addition to the advantages already provided by international specialization, one has to add the possibility of transferring financing capacity to economies suffering from a shortfall in savings, and also of smoothing over time the lack of adjustment between savings and investment triggered in each country by the overriding need to develop infrastructure, specific demographic features, the life cycle of households or the state of public finances. In an increasingly uncertain world, financial innovation also gives rise to possibilities of hedging and transferring risks that did not exist in the past. But simultaneously international capital movements can lead to greater fragility and chronic instability in international financial markets. In a context of asymmetry of information and short-sightedness in decisionmaking, the decisions with respect to portfolio reallocation by international investors in the asset markets and the brutal discontinuation of loans extended by international banks can respond to herd-like rationality, endogenous changes in expectations reflecting swings in perceived insecurity, without any significant deterioration in macroeconomic fundamentals. Such episodes are likely to disrupt the determination of asset prices and the allocation of savings on an international scale, triggering crises and leading to huge social costs. Thus the 1990s saw a rash of currency crises,...