The whole world is fighting the crisis now. The Economy of almost every country is in danger. The crisis in most fields of production comes closely with the problems in the Economy of the countries. The biggest responsibility is lying on the shoulders of the banks. The Central Bank is responsible for any financial operations on the level of the country. It is very difficult to maintain usual economic operations when the global economy is in crisis and there is no such institution that could stabilize or even control the global financial operations. Some biggest financial institutions are failed to fight the crisis.
As Michael Mandel writes in his article, the financial world crisis flows out of the absence of a global central bank, which could have regulated the world financial movements. “To evade regulation, financial institutions hopscotched their money across national borders and back again. In the process, they gained a bit higher returns, at the cost of greatly expanding the complexity and opacity of the financial system” (Mandel 2009).
He explains the necessity of the Global Central Bank in such a way: the European Banks took credits in America when there was the credit boom. The dollar balance sheets are growing every day enormously. The financial structures are giving risky credits, in fact, the finance dangerous and risky affairs involving high rates in order to receive higher profits. “The U.S. money market funds were investing much of that money in short-term securities issued by non-U.S. banks in order to get higher returns” (Mandel 2009). The risk is in the financial operations is that “the U.S. money market funds could not get away with investing directly in these risky long-term assets. So instead, they sent the money overseas, where the foreign banks did the dirty work for them of investing in the risky assets” (Mandel 2009).
The idea about the Global Central Bank has its advantages and disadvantages. We are talking about accepting a new world currency that can replace the dollar and function independently on the level of the whole world. Now the American bank system holds into its hands the economy of almost the whole world. The dollar is the world currency that is used to make the financial operations of many countries in Eastern Europe.
The opposite meaning is that such a huge structure as The Global Central Bank cannot give strict guarantees about the security of financial operations around the globe. The problem is that the stature of such a huge global organization needs time and the decision to the problem should be given as faster as possible. The countries will also need some time to become sure about this structure. They will first make some small not significant financial operations, and the problem we have is the possibility to solve the risky problems as soon as it is possible.
Economic principles: medium of exchange is a principle according to which a bank, or similar financial institution, is able to create some amount of new money. People should trust this bank at least a little in order to accept its paper as valuable.
Mandel, Michael. “More details about how the crisis grew – and the argument for a global central bank”. Business Week. 2009.