Financial Globalization: Unequal Blessings (original) (raw)

This presentation outline describes our framework to analyze financial globalization. It argues that financial globalization needs to take into account the relation between money (particularly in its role as store of value), asset and factor price flexibility, and contractual and regulatory institutions. Countries that have the "blessed trinity" (international currency, flexible exchange rate regime, and sound contractual and regulatory environment) can integrate successfully into the world financial markets. But developing countries normally display the "unblessed trinity" (weak currency, fear of floating, and weak institutional framework). It is difficult for developing countries to achieve the blessed trinity. Their altematives are to reach either the "dollar trinity" or the "peso trinity," neither of which is the real thing, but may do in terms of limiting risks and reaping benefits of international financial integration. ® Anotated paper outline prepared for the ECLAC-World Bank Seminar on Globalization, March 6-8, Santiago, Chile. We thank Guillermo Perry and Luis Serven for helpful discussions. The views expressed in this paper are entirely those of the authors and do not necessarily represent the views of the World Bank, its staff members, its Executive Directors, or the countries they represent.