Financial globalisation not so great – Bank for International Settlements

We don’t have time today to do this one justice, but it’s an important pair of articles on FT Alphaville – here and here, which are introduced, if not fully summarised, thus:

“The consensus among Western policymakers is beginning to shift, however. The IMF officially changed its tune in 2011 by suggesting how emerging market countries could best limit overabundant inflows.

A trio of recent papers by top officials from the Bank for International Settlements goes further, however, arguing that financial globalisation itself makes booms and busts far more frequent and destabilising than they otherwise would be.”

The implications for tax justice are manifold – including that tax havens, whose spin doctors claim that they make international finance flow more smoothly, aren’t doing the world a service, even on that very incomplete metric. The FTA report asks:

“Are these massive flows, which are orders of magnitude larger than cross-border trade in goods and services, actually worthwhile? Could policymakers stabilize the financial system by constraining the global movement of capital without affecting real economic activity?”

And they note:

“The BIS scholars believe the relatively small net flows of the current account are “a distraction” from the much larger and systemically important gross flows of capital across borders. It is the gross capital flows that create enormous liquidity and maturity mismatches as well as excessive leverage.”

John Maynard Keynes pointed to some other, perhaps even more fundamental, mismatches they might have considered too:

“Experience is accumulating that remoteness between ownership and operation is an evil in the relations among men, likely or certain in the long run to set up strains and enmities which will bring to nought the financial calculation.

I sympathise, therefore, with those who would minimise, rather than with those who would maximise, economic entanglement among nations. Ideas, knowledge, science, hospitality, travel–these are the things which should of their nature be international. But let goods be homespun whenever it is reasonably and conveniently possible, and, above all, let finance be primarily national.”

The FT Alphaville reports contain fascinating forays into Switzerland and Germany before the Second World War, and plenty more. More on this, hopefully, soon.

In the meantime, here’s a pretty picture of financial crisis-related contagion, with tax havens centre stage.