Global Financial Integration, China, and the Role of America

Abstract

The position that the United States has enjoyed as the center of the global financial market is at least partly responsible for the economic development that the country has enjoyed in the 20th century. With the global financial markets ever more integrated and closely related, the issue of whether or not the US can maintain its leadership in the global financial market will have considerable implications for the further economic development of the country. Three major imbalances characterize the challenges it will face in the 21st century: trade imbalance, fiscal imbalance, and capital flow imbalance. While trade and fiscal imbalances have been present in economies for decades, imbalances in international capital flow will become more acute in the 21st century. At the same time, many Asian economies (most notably China’s) are experiencing the opposite trend: with the size of emerging Asian economies increasing and that of the developed economies growing at a slower pace, it is conceivable that the currencies and securities from emerging economies may become more attractive and, in some cases, even safer.