ABSTRACT
In this chapter, we will look at the core elements of the world financial system, how it works, how the different markets for money and finance interact, and what institutions there are which manage the system. At a fundamental level, the system is regulated to an extent – it consists largely of market forces, but the markets are often not ‘free markets’ except in a relative sense. The regulators include national actors (especially in the more powerful states), banks and inter-banking institutions, international bodies such as the IMF, and a number of key agents which are entirely private (in the sense that they are not at all under state control), including major accounting firms businesses which insure financial transactions, and credit rating agencies. The chapter also tries to explain why the world went into financial crisis in 2007 and what might be needed to get it out of crisis without creating the causes of further problems (if that is possible). This also provides a case study of some important aspects of globalisation processes in IPE which relates to other chapters and other discussions in this volume.
