The International Financial System is very important for the smooth functioning of the world economy, which makes knowing how this system works essential for investors and also for the entire population, since this system influences the lives of all people around the world.
In this article, we will discover in a simplified way how this International Financial System works. Good reading!
What this article covers:
What is the international financial system?
The International Financial System was created to help banks and institutions organize the world economy in a way that all system functions were interconnected, thus creating a huge logistical network in which the exchange of information would become much more efficient and faster. .
But it wasn’t always that the financial system had all this structure, before the International Financial System was created, the world financial market was still very precarious and there wasn’t this huge logistics that we know today behind it.
This caused many countries to row against the global financial current, which had great consequences for their economies. This problem was only resolved in 1944, with the creation of the International Financial System, in which countries began to exchange financial information among themselves and help each other.
How does the international financial system work?
The International Financial System is responsible for creating various legal agreements aimed at the economic sector, these agreements help financial institutions around the world to exchange information with each other, thus forming an economic alliance that facilitates the global flow of financial capital, guaranteeing, for example, the entry of foreign financial investments in many countries.
These financial agreements are usually multilateral, that is, they benefit all countries that are part of the International Financial System. This guarantees the transparency of the system and creates efficient and equal regulation that benefits the entire global financial market.
Who are the main players in the international financial system?
The financial system is mainly governed by the constitution, but with the creation of the International Financial System, entities were created that help oversee the entire world economic market. The two most important entities are:
- International Monetary Fund (IMF);
- International Bank for Reconstruction and Development (IBRD).
These two entities help ensure the smooth functioning of the International Financial System and promote global economic stability.
How important is the international financial system to the world economy?
The International Financial System is very important for the proper functioning of the global financial market, it supervises and guarantees the proper functioning of the economy around the globe.
He also acts as a market protector, and is responsible for supervising all transactions, assessing risks and warning about possible economic crises in many countries, thus preventing the progress of major economic crises, such as the Subprime Crisis, which occurred in the year of 2008 and shook the whole world.
The International Financial System guarantees the proper functioning of the entire global financial sector and reduces risks in financial operations. Since its inception, the financial world has gone through a great wave of progress and development that has helped to avoid major economic crises that could shake the entire world.
Are there risks associated with the international financial system?
It is impossible to say that there are no risks in the International Financial System, since the behavior of the global financial market is very volatile and difficult to predict. For example, in the United States, companies are going through a difficult crisis related to the relationship between corporate debt and the country’s GDP.
Many European countries are also overloaded with government bonds. China is also experiencing a major problem related to banks, where profits are increasingly falling.
All these factors greatly influence the entire International Financial System and it is necessary to be attentive to news related to the world economy, since we are experiencing great adversities around the world in recent years, such as the pandemic and war conflicts between countries, which can significantly influence negative the entire financial market.
The International Financial System is very important and it is not necessary to be an investor or an expert on the subject to try to understand how the world market works. It is essential for everyone to understand how our money is used, so that we can have a better financial life.