The paper "Definition of Globalisation, Global Financial Transactions" is a perfect example of business coursework. Globalization as a word is very broad and can be defined in a variety of ways as most scholars seem to view it from their own unique perspectives and respective backgrounds. But for the purpose of this brief, we will take three approaches which are, social, political, and economic. On social terms, Jain and Srinivasan (2008, pp 180) define globalization as the process of linking nations together to form a worldwide community or redefining the roles, possibilities, and risks of different nations, resulting in a redefinition of international relations and foreign policy.
From the political perspective, Boutros-Ghali (1996) sees globalization as the interconnectedness of different nations into a single unit, making national boundaries obsolete but creating new problems and possibilities. Economically, Harris (1993, pp758) defines it as the expansion of production, distribution, and marketing of goods and services across national boundaries. The following project is aimed at examining the role of government in fostering or hindering financial globalization. It starts by looking at the evolution of financial globalization and looks at how and why governments may play a role in it.
It then goes further to examine the pros and cons of government intervention in financial globalization and takes a look at our case study, Northern Rock, and how the effects of globalization pushed the company to the brink of bankruptcy before proceeding to conclude. The evolution of Global Financial Transactions The extent to which the government plays a role in financial globalization can be determined by the degree of centralization of the financial system and the existence of a financial hegemon or leading power (Germain, 2004, pp 71).
This has developed from the 19th century with the world’ s financial system overwhelmingly centralized in London which was organized around the activities of a small number of internationally active financial institutions (Germain, 2004, pp 71). During this period, financial governance was provided through the customs and mores and norms of the code of conduct which were supplemented by central bank cooperation operated by the government (Germain, 2004, pp 72). This practice was succeeded during the middle decades of the 20th century (The Bretton Woods era) by the American administration which established the legal and normative frameworks that governed cross border financial transactions, hence, financial governance during this period became “ associated with what the American government did” (Germain, 2004, pp 72).
The above two giant governing bodies no longer determine cross border transactions today, yet they are growing daily and have taken other forms of operation. How and why Governments intervene in Financial Globalisation. Governments will generally play a role in the globalization of financial markets for two basic reasons. These include the “ increasing demand for government expenditure to smooth out fluctuations in the economy associated with external shocks and the diminishing taxation capacity by national governments due to enhanced capital mobility” as financial borders are flung open (Kimakova, 2009, pp 395).
Every sovereign government’ s tax structure and expenditures are affected by globalization is two basic ways. As there is increasing international financial integration, national governments lose part of their monopoly power over fiscal policy as they increasingly find themselves in a situation of strategic interaction with external counterparts (Bretschger and Hettich, 2002, pp 698).
Also, globalization increases uncertainty in fiscal policy, demanding structural adjustment in the economy, a process called ‘ the efficiency hypothesis’ or the ‘ compensation hypothesis’ (Bretschger and Hettich, 2002, pp 698).
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Web site consulted
http://companyinfo.northernrock.co.uk/investorRelations/corporateProfile/, retrieved on 05-12-2010 at 20,05pm