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What Is the Global Financial System?

The global financial system includes banks and other financial institutions, along with regulators functioning on an international level.
Critics of the World Bank say that the loans it makes to poor countries result in indebtedness and reliance on foreign aid.
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  • Written By: Haven Esme
  • Edited By: Bronwyn Harris
  • Last Modified Date: 22 November 2014
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Since the dawn of creation, people have engaged in financial transactions of some sort. Today, financial transactions often take place on an international level within the global financial system. This system allows markets to exchange information and financially impact each other around the clock. The technical definition for a global financial system, however, is a system composed of financial institutions and regulators that act on an international level. As globalization evolves, the system becomes more influential in many country’s economies.

There are several international institutions that play a prominent role in the global financial system. One of the most prominent institutions is the International Monetary Fund, which was created by the United Nations in 1944. The purpose of the institution was to build a framework for economic cooperation and ensure that the international monetary system remains stables. The Fund works by controlling and monitoring exchange rates and serving as a liaison for countries to enter into transactions with each other. The International Monetary Fund is credited for preventing crisis in the global financial system.

Another prominent player in the global financial system is the World Bank, whose main purpose is to provide loans to developing countries. The World Bank was created by the United Nations in an effort to eradicate poverty in poor countries. In addition to financial resources, the World Bank also lends technical expertise to help countries progress in areas of education, infrastructure, communications, and health.

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The initial goal of the World Bank was to free the world of poverty. After many years in existence, the World Bank has undergone criticism for its inability to eliminate the massive poverty that still rages in many countries. The World Trade Organization also plays a crucial role in the global financial system. The organization was created to establish and enforce rules of trades between nations.

The global financial system is responsible for providing core economic functions. The system facilitates trades, provides a mechanism for the pooling of resources, manages financial risks, provides price information, and provides ways for countries to transfer economic resources across borders and among different industries with ease. The financial system is a complex system that functions and changes with the economic and political climate. Despite differences in cultural, political, and historical backgrounds, countries come and work together in the global system.

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