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Global Financial Crises

Financial crises have been part and parcel of the international monetary system since time immemorial.

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Financial crises have been part and parcel of the international monetary system since time immemorial. If we look at Eichengreen’s (2008) text, Globalizing Capital, arrangements that are established to help the international system avoid crisis and instability are the exception, not the rule (6). Thus, instability, uncertainty, and crisis are norms for the international monetary system, which is a rather grim prospect. Moreover, Nelson and Katzenstein (2014) point out that “[t]he financial crisis of 2008 reminds us that we live in a world of risk and uncertainty” (362). Such a reminder is important if we are to understand the importance of financial crises within the international system. Thus, the financial crisis of 2008 is another example of the uncertainty and risk that dominate the global financial system. Despite rather grim prospects that face the international monetary system, there are a few ways to mitigate crises such as the one that struck in 2008.

Dowell-Jones and Kinklye (2011) point out that human rights are not effectively embedded in the financial system (185). Those companies that claim to have human rights departments or concerns only address lesser issues pertaining to human rights or are offering a rather misleading picture of their activities altogether (Ibid.). The financial crisis of 2008 led to real human rights concerns across the globe (186). People and communities were collateral damage in this global catastrophe, making it all the more important to address the human rights lacunae in the financial system (186). The lacunae Dowell-Jones and Kinklye discuss in their article are quite interesting. They appear to suggest that the financial system needs to be far more transparent, especially when it comes to the very instruments of finance (189-96). This could alleviate some of the problems concerning financial crises. In other words, both authors appear to suggest that the complexities and the rather ambiguous nature of these financial products are contributing to a human rights crisis on a global scale (196).

Nelson and Katzenstein (2014) point out that some $11 trillion in household wealth was destroyed by the crisis (361). That statistic is quite disheartening and forces us to consider what we can do to prevent such a crisis from happening again. Nelson and Katzenstein point out that the conflation of risk and uncertainty could be one area of concern when dealing with such financial crises (362). Generally, risk can be accounted for (Ibid.). However, it is uncertainty that cannot be accounted for by players of the international monetary system (Ibid.). It is this conflation of risk and uncertainty that leads to trouble. I believe Nelson and Katzenstein would argue that there needs to be a conversation about the nature of risk and uncertainty. In other words, that both are not the same, but, rather, that the two deal with totally different things. Risk is a part of everyday life. However, uncertainty is something that is far from predictable—think: mold breaking or paradigm shifts in the international system.

Eichengreen’s own text offers a number of solutions, but these solutions are double-edged swords. In the conclusion of Globalizing Capital, he appears to favor the European model for dealing with risk and uncertainty (232). In other words, Eichengreen appears to favor the development of currency blocs that are used to eliminate the instability of exchange rates in the international monetary system (Ibid.). Moreover, capital controls appear to be something that Eichengreen believes will provide some stability (Ibid.). However, he shows ambivalence toward both of these solutions, as neither is perfect. Moreover, neither fully eliminates the problems plaguing the international monetary system.

With all of that in mind, I believe that there needs to be a fundamental shift in the way we think about crises and their role in the international monetary system. Crises are here to stay. They’ve always been the norm, which is rather disconcerting. Nevertheless, we need to think about financial crises and how we handle them. We cannot predict them, but we can mitigate their damage and prevent the kind of collateral damage that occurred during the 2008 crisis. Moreover, we can start thinking about uncertainty in different, more meaningful ways. By that I mean we need to stop conflating risk and uncertainty. Doing so has caused more harm than good.


References.

Dowell-Jones, Mary, and David Kinklye. 2011. "Minding the Gap: Global Finance and Human Rights." Ethics & International Affairs Vol. 25, No. 2 (pp. 182-210).

Eichengreen, Barry. 2008. Globalizing Capital: A History of the International Monetary System. Princeton, NJ: Princeton University Press.

Nelson, Stephen, and Peter Katzenstein. 2014. "Uncertainty, Risk, and the Financial Crisis of 2008." International Organizastion Vol. 68, No. 2 (pp. 361-392).


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G. Michael Rapp

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