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Since time immemorial man realized the importance of trade. Money & Finance came into existence from the time trade began. In early days goods were exchanged for goods . Thereafter goods were exchanged for services.
This necessitated a medium of exchange and transit from barter economy. This transition necessitated a currency called money. Different countries have different currencies along with a regulatory body for eg RBI in India.
Every country have their own regulatory agency or bank. This is a governmental body created by legislature to execute ,enforce and implement certain laws.
Bank regulation involves two steps 1. Licensing 2. Supervising.
Before Licensing the entity’s intent is evaluated regarding ability to meet regulatory guidelines governing the bank’s operation, financial soundness and managerial action.
The second component is Supervising includes ensuring that functioning of bank complies with regulatory guidelines and monitor possible deviation from regulatory standards. Examples of bank supervisory bodies include the Federal Reserve System & Federal Deposit Insurance Corporation in US, Federal Conduct Authority & Federal Regulatory Authority in UK etc.
Man has invented money as a medium of Exchange after immense struggle.Money is the base on which the road to all financial transactions are built. In this materialistic world a person is measured in terms of money. Yet whether money or finance will rule the world is doubtful.
Lately bitcoin, cryptocurrency has emerged. This has only increased the type of currencies available but it has not displaced the main role of money i.e. exchange medium. The bitcoin is converted to cash either dollar or euros.
In earlier times in India vastness of estates and Jagirs was what a ruler ought to have to portray his power in his own territory. The strength of his defense forces, arms & ammunition, vastness of territory pictures his exact power to his rival kingdom. The valued possessions he had in his custody ,vastness of his territory , unity etc reflected his authority to his neighboring kingdoms.
Once upon a time in India we had 565 princely states which was ruled by kings/rulers. The major criteria to prove that the ruler was affluent & powerful was the size of his kingdom in all aspects.
Even today a country’s currency is compared with another country’s currency. Rupee is devalued against dollars by RBI. Economists say that this situation of currency getting devalued is because of several factors which contribute to currency’s valuation. But mostly it is matter of demand & supply .
If there is lot of demand for our currency on account of exports of products abroad then value of currency increases.However in the reverse situation value of currency decreases. If RBI issues a lot of money then money supply will be more than demand.If a State earns more than it earns on taxes, then it is tempted to issue more money to pay for deficit. If public debt is low then currency devaluation is prevented.High interest rates , raising incomes prevent devaluation because people will hold on to currency and high interest rates will attract NRI and foreign investors to deposit in our country. This way investors will buy our currency thereby appreciating our currency.
Governments derive their economic power from 4 key sources
- Print money 2.Issue 3. Taxation 4. Borrow
In three areas they have held monopoly but in case of borrowing they hold the position of privilege derived from the ability to print money to repay debts. This means devaluing the money when debts become onerous. but open financial markets threaten future objectives.Large financial players, individual citizens have the option to switch over to other tax regions with ease.
U.S. Government is waging a global war against its citizens to gain control over their taxable income. European nations are slow to give up their own taxation privileges.
Printing money is the legal privilege and monopoly of Governments but currency soundness standards are strict. So weak currencies are linked with stronger currencies like Peso is linked to dollar.
Intense global competetion for funds, limits on borrowing imposes discipline and thus force government to reduce expenditure by cutting down unnecessary activities and privatize anything that can be privatized. Thus in the area of regulation position of governments is also threatened. These regulations ensure efficient distribution of resources.
Openness of borders, difficulty in defining of territory which exists virtually are the hurdles for regulation of financial markets. All Governments can come together and establish global regulation having minimum capital standards for international banking and the same can be enforced by individual governments.
The crux of the situation is the regulators are entrusted and preserving a system which is not controlled thoroughly by them and neither they nor the players understand.
The governments have immense control to change the markets with their policy moves and the financial authorities show how the markets reacts to their moves then one may wonder who is in charge.
The 1987 Stock market crash, 1994 bond market crash have made markets uncertain.. The volatility of markets due to changes in political scenario in any part of the world, natural calamities etc has resulted in Government versus market struggle. So good governance and sound economic management by governments of the world can deter this world into entering into economic crisis.
Unless markets regulatory bodies function independently of the political or other situations in any part of the world and they are functioning in the interest of the whole world Money /Finance ruling the world is only a dream. Money /Finance can rule our mind but not this world.