Evaluatin of Feasibility of Financial Stability in Increasingly Globalized Economy - Essay Example

?Evaluation of Feasibility of Financial Stability in Increasingly Globalized Economy Introduction With the ever increasing resources and opportunities of interactions and communications courtesy the media and the emergence and evolution of information technology sector, the world has not even become even a global village but a family home where every other individual family member is informed in all aspects about his/her other family member. In other words, the trend of the local matters becoming global matters, have increased sharply such that every other country is somehow associated with rest of other countries. The world has witnessed quite many economic downturns as well as financial bubbles and the impact of those global trends has been there on the individual country level like never before (Rahn, 2010). There comes a question whether the current increasing trend of globalization is leading the countries towards financial stability or not, is yet to explore. This article critically discusses the question whether increasing globalization directs the financial stability in detail with both arguments in favor as well as against of this question. This article is structured in such a manner that it is divided into four major parts such that the first section emphasizes on the concept of globalization followed by second section which describes phenomenon of financial stability. Third section of this article provides arguments in favor of the statement that increasing globalization assists in gaining more financial stability followed by the last section which provides opposite arguments in contradiction of that statement. Conclusion will lead to an end of this discussion. Globalization The term globalization has different meanings and different interpretations but over here its meaning is taken as the phenomenon due to which the individuals have come closer to each other beyond their geographical boundaries. Today, if any individual whether a person or a country wants to develop some sort of relationship with other individual, that decision is not even in his/her capacity such that all other individuals have joined hands and became a unit. So in case, if an individual tries to be isolated and independent from other individuals, this possibility has become quite rare. If this concept of globalization is viewed on a broader level in terms of the international relations developed among different countries of the world, an important trend can be noticed such that more frequent changes have emerged as the nations are shaking hands with each other despite of even having the worst historical experiences. The current trend which is highly adopted by the countries as well as leading towards an increasingly globalized society is the unification of different sorts of block on different basis (Greenidge, 2008). These blocks are developed due to some mutual interests of the countries such that different backgrounds set the stage for the countries to develop such blocks. For instance, oil producing countries have developed their own block and decide as per their own preferences about the production and supply of oil. Similarly, some countries establish a block for their mutual economic interest like the case of European Union. There are blocks which are developed due to mutual defence related interests for the security of those countries. So in a nutshell, the most important reason behind current movement of emergence of globalization is the increasing pattern of building up various kinds of blocks based on the mutual interests of the participant countries (Greenidge, 2008). Financial Stability The concept of financial stability refers to the financial environment whether on an individual level of a country or on global basis such that the participants of that environment feel confident regarding the value of their economic and financial resources (Rahn, 2010). Basically, it is the confidence level of the people or countries that bring financial stability into that particular region. If the people or institutions are shaky about the current and future outlook of the economic and financial resources of that region, the resources of that region will start losing theirs worth without even any appearance of physical type of loss. For instance, if a depositor becomes shaky about the future outlook of the bank then he would be more interested in withdrawing the amount of money that he earlier had deposited in the bank as he has lost his confidence in the bank and feels that if he did not do so in quick time, all the deposited amount would be wiped out. Similarly, the other people might also react on his move and start withdrawing their money, in this way the bank would become bankrupt due to the shortage of liquidity as it has already given loans or credit facilities to other clients. If one bank comes into trouble, the other banks which operate in the same country also face similar situation and in this way the wave of bankruptcies increases and destabilizes the whole economy. This whole situation is termed as ripple effect (Shah, 2010). It was just an example of the instance that reveals that how financial stability is attached with every other individual living in that region. Not only the individuals but also the countries that are dependent on each other also face the similar situation as a result, the existence of financial stability in a globalized world becomes a question mark as every country in its independent capacity is losing its grip over its economic and financial prospects. Arguments in Favor of Feasibility of Financial Stability in Increasingly Globalized Economy As the economies all around the world becoming more globalized, there are still bright opportunities available which support the fact that in increasingly globalised economies, the feasibility of economic stability still exist despite of the concerns attached with this phenomenon. The following discussion critically examines those factors that support this concept. Interdependence of the Countries The most promising feature of today’s globalized economy is that it has bounded all countries in some sort of relationship with each other on the basis of national interest of those countries. When national interests of the countries become the mutual interests of the countries, it gives rise to more consolidated globalization in the overall economic arena. Some countries become interdependent on each other on “give and take” basis such that in order to meet its own interest, that country has to honour the interest of the other country as well and vice versa. Nowadays, the countries are becoming more interdependent especially on economic grounds as every other country realizes the fact that a better economic upfront can protect it with other debacles. Generally, people perceive that China and US, are the biggest rival in current times and they might face each other head to head at some time in a battle field, but what actually is protecting both countries to do so is the economic interdependence of both these countries. For instance, in US bonds, the biggest investment has been made my China and in return for that US is the biggest buyer of Chinese exports. In this way both these countries do not have any room to undergo into any clash. So if one country wants to remain stable on financial grounds, then at the same time it also thinks for the betterment for the other countries as well because in case if there comes any issue with the other country, then the country in question will have to accept the impact of the situation of other country as well being an interdependent partner with that country. This shows that how financial stability is still quite much feasible even in a globalized economy. Think Global, Act Local Another major strategy that is gaining popularity especially among the developed countries is to become independent on certain issues such that those countries exploit those resources as their strengths on which they have a comparative edge over other countries. Since other countries depend on the resource of that country, therefore even if the financial stability of those other countries comes at some stake, yet that particular country can prevent a financial disorder. The current trend, that countries mainly focusing as well as following is the concept of “think global but act local”. By utilizing this concept, the countries always keep a strong eye over the affairs of other countries and take come necessary actions accordingly in its own jurisdiction such that it keeps implementing those strategies which can stabilize the overall financial position of the country as well as combating the likelihood of any uncertain global economic downturn. In this way, there is a hope that the global financial burst may not hit the countries as hard as it did in the last decade or so, thus, ensuring the financial stability even in a more globalized economy. Arguments against Feasibility of Financial Stability in Increasingly Globalized Economy There are other opinions as well which highlights some significant concerns upon the financial stability of countries in a globalised economy. Those concerns are critically discussed as under. Uneven Balance of Resources Every other country is not dependent on other in the same proportion. Some countries are rich in some resources and some are in others. For instance, Iran is rich in oil reserves. As it is a major player in the global oil market, therefore its relationships with other countries highly influence the global price, production and supply of oil. If there comes any problem with some of the large countries of the world with Iran and Iran gets isolated from rest of the world, for that case, Iran would try to exploit oil as its biggest strength and will cease oil production for other countries. In this way, the oil prices and production, both would be increased all over the world and those countries which are dependent on oil producing countries, would experience severe problems in respect of their financial stability. In a nut shell, it can be summarized that even if any major player of the global economy is disturbed, the whole world has to pay its price directly on indirectly. Influence of the Economies of Developed Countries It is important note that the major players in the financial world are United States and Euro Zone. Pacific countries are still at their developing stage. So if the economy of any major player is disturbed even at a minor level, it can have massive effects upon the countries. For instance, if Fed of United States takes some decision regarding the money supply and takes some action, immediately that step would fluctuate the dollar prices all over the world, as a result, the foreign exchange market would experience severe fluctuations which in turn would also change the price dynamics of metals especially gold. So, it can be summarized that with the increasing globalized economy, still there are question marks regarding the feasibility of financial stability. Conclusion This article mainly discussed the feasibility of financial stability in an increasingly globalized economy with a critical view such that arguments both in favour and against were presented. The interdependence and “think global and act local” approaches can lead to financial stability in an increasingly globalized economy. However, imperfect balance of resources and influence of major countries of the world over the global economy place question marks upon the feasibility of financial stability with increasing trend of globalized economy. Works Cited Baker, D., 2008. The housing bubble and the financial crisis. [Online] Available at: http://paecon.net/PAEReview/issue46/Baker46.pdf [Accessed 6 April 2012]. Dullien, S., 2010. The Financial and Economic Crisis. New York: United Nations Publications . EconomyWatch, 2010. Financial Crisis, Credit Crisis, Credit Crunch. 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