Edited by Patrick Artus, André Cartapanis and Florence Legros
Regional Currency Areas and International Financial Architecture in Financial Globalization: An Introduction
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,...