Financial globalization

Financial globalization
About 400 years back, there was little difference between income per capita in the west and the east. China had about the same standard of living, as in the United States. But between 1700 and 1950, off the western economies as China GDP per capita actually declined. There is a strong possibility that the problems of China due to its financial system. In Renaissance Europe, fiscal competition drive financial innovation. China finance its deficit by printing money. In addition, the coinage was available in many thanks to China's trade surplus enjoyed by the West. So, China has little incentive to develop the market for commercial bills, bonds and stocks. Modern financial institutions do not come to China, but as part of a package of Western imperialism. So these institutions have always been susceptible to patriotic backlashes against foreign influence. A legacy of bitterness towards colonial exploitation ensure that China (and India) was largely cut off from global markets from 1950 to 1970.

For three decades before 1914 were golden years for international investors. The cost of communication fell drastically. Gold standard provide exchange rate stability and fiscal discipline. Inflation remained meek and reduction of debt in real terms. Interest rates remained low. Liquidity increased due to increased gold production and financial innovation. The banking system has managed to mobilize savings and channel them into investments. Higher growth and increased tax revenues to keep the deficit under control.