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Global financial architecture, global imbalances and the future of the dollar in a post‐crisis world

Karim Pakravan (Department of Finance, DePaul University, Chicago, Illinois, USA)

Journal of Financial Regulation and Compliance

ISSN: 1358-1988

Article publication date: 22 February 2011

Abstract

Purpose

Financial globalization and global imbalances are two facets of the same phenomenon, which has resulted in the worst global economic and financial crisis since the Great Depression. The purpose of this paper is to analyze the complex interaction of several mutually reinforcing trends and factors – the global monetary easing of 2001‐2004, financial innovation, regulatory failure, in particular in the USA and the UK, US fiscal indiscipline and Chinese currency manipulation – that contributed to the global financial crisis. The key to a return to global financial buoyancy will be the coordinated resolution of the global imbalances over the medium term, as well as the establishment of a strong global financial regulatory framework focusing on both macro‐ and micro‐financial risks.

Design/methodology/approach

In the paper, the author analyzes the role of the interaction of financial innovation, regulatory and global imbalances in the creation of the real estate bubble, shadow banking and the eventual collpase of what the author dubbed the Banking 2.0 structure (1980s).

Findings

The main findings are that these factors contributed to a flattening of the yield curve in 2004‐2006 despite the tightening of monetary policy and growing US fiscal deficits. Moreover, while the US dollar is on a long‐term weakening trend, the lack of alternatives means that it will maintain its role as a reserve currency.

Originality/value

This paper focuses on the role of the global imbalances in triggering the financial crisis and shaping the role of the dollar in the post‐crisis world.

Keywords

Citation

Pakravan, K. (2011), "Global financial architecture, global imbalances and the future of the dollar in a post‐crisis world", Journal of Financial Regulation and Compliance, Vol. 19 No. 1, pp. 18-32. https://doi.org/10.1108/13581981111106149

Publisher

:

Emerald Group Publishing Limited

Copyright © 2011, Emerald Group Publishing Limited