chapter  2
17 Pages

A Theoretical Framework

One of the key issues facing the international economy, both at the level of theory and practice, is related to appropriate levels and mechanisms for international fmancial intermediation. The essence of the problem has been discussed by economic theory for a Jong time; however, the problem has become significantly more acute in the seventies as both current account deficits and surpluses, particularly of different categories of developing countries rocketed. Furthermore, the issues have become somewhat more complex as financial intermediation internationally has acquired new and more complicated facets, besides the still fundamental classical purpose of channelling savings into productive investment. As the superstructure of investments and currencies has become enormous and complex, as the world's needs have become more differentiated, the result has been that many more of the gross flows through the capital markets of the world today reflect financial decisions that are not directly tied to (nor do they necessarily lead to) physical capital formation, than occurred in the past.