The international financial system is an integral part and one of the most complex areas of the world economy. Without any doubts, innovations, international economy and many many other factors influence the whole world finance situation. It focuses on the problems of the world and national economies, the development of which has historically been parallel and closely interconnected, especially at the current rate of globalization. International relations are inconceivable without an established system of financial relations.
The world financial system is economic relations associated with the functioning of world money and serving various types of relationships between countries (foreign trade, capital export, investment, loans and subsidies, scientific and technical exchange, tourism, etc.).
The development and stable functioning of the international financial system is due to the growth of productive forces, the creation of a world market, the deepening of the international division of labor, the formation of a global economic system, and the internationalization of economic relations.
In the modern world, the economies of all countries are closely interconnected. Thus, a financial crisis in one country can pose a threat to the economic stability of many countries of the world. Bankruptcies, debt moratoria, defaults in one particular country can cause stock price and currency collapses, stock market turmoil, defaults, price hikes and other irregularities throughout the world. This is especially true at the present stage of development of the global financial system, when leading economists of the world are sounding the alarm about the sharp deterioration and threat of a global economic crisis against the backdrop of a possible recession in the United States. The USA has a leading role in the global financial arena. This is due to the fact that the dollar is recognized as the world reserve currency.
All work of any financial system consists of loans and debt interest. The top of the system begins with the International Monetary Fund, which gives loans to other countries and receives them back with a percentage. Thus, capital is growing and continues to be distributed in the form of loans. The subsequent amount of loans increases, and along with the amount, the percentage grows.
Banks that also issue loans and receive them with interest, are responsible for the financial system work. The system receives huge amounts that give potential development of the entire economy, but there is also a flip side to the coin. Permanent lending increases loan interest.
Using services of the global financial system – states, organizations, banks and people drive themselves into debt. This concerns not only poor people or underdeveloped countries, but everyone remains in debt. It is no secret that the United States has the largest external debt, however, America remains one of the most powerful countries in the world, and the dollar is the main world currency. This is how this system works and we are forced to live by these rules.
The main disadvantages of the financial system:
– everyone who wants to use the services of the financial system is obliged to overpay the cost of such services. Cost increases due to credit interest, margins and taxes;
– as already mentioned, the financial system generates debts where countries and institutions end up. These debts cause financial crises, and if the system continues to move in the same direction, then in the future we can expect a global financial crisis;
– the financial system has blunted people’s feelings and put money on the first position. World production is aimed only at making money and destroys other values (nature, flora, ecology);
– price is increasing. Due to the rapidly growing loan interest, borrowers do not have time to produce the required amount for repayment. Because of this, they have to raise their own prices.
If to fantasize, we can come up with the following actions, which theoretically can be put into practice:
- first of all, it is necessary to reduce the value of money and direct them into constant production turnover. But to reduce the value is extremely difficult, it is necessary to remove the loan interest.
- The next step is to affect the tax system. All taxes must be removed from manufacturers and imposed on consumers.
- Based on the first two points, we can conclude that production in the world would increase significantly, which again could affect the environmental problem.
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The development of financial markets in the medium term will also occur under the influence of external and internal factors.
Author: Serg Dum
Almost 3 years I am devoted to work as a Chief Content Editor at King Billy Casino