The world of global finance has changed radically since the global financial crisis began. The proportion of world GDP accounted for by gross cross-border capital flows has fallen by more than half. Most of this decline is attributed to a significant retreat by companies from overseas business. In Europe, major banks have also turned away from cross-border wholesale funding.
Global finance is a complex system of institutions and interdependencies. Some of the major players include governments and private companies. Some governments regulate the global financial system, while others are involved in crisis management. The United States has long been a champion of free markets and has become one of the world’s major financial capitals. Yet many critics blame the United States for the financial crisis of 2008.
While globalization benefits many countries, it also has its drawbacks. For example, it can increase the risk of an internal financial disaster affecting other countries. This can negatively affect investors and create instability in financial markets around the world. Furthermore, it can impact the willingness of banks to lend capital, hurting startups. Another side effect of globalization is increased competition among businesses.
The 2008 global financial crisis shook the system and plunged developed markets into recession. Although stimulus packages saved some countries from a 1930s-like depression, the ongoing crisis highlights the need for a comprehensive global finance regulatory system. In 2010, the G20 agreed to take the first steps toward international regulatory reforms and liquidity support. However, these efforts have not yet been fully implemented.