This paper will attempt to explain the roles of financial institutions in the global economy while also looking into the future of the financial services industry over the next decade and speculating as to how the industry is likely to change. Finally, I will examine how these changes might impact the stakeholder relationships my organization has with financial institutions.
To understand the role financial institutions play in the global economy it is important to first understand the nature of the global economy and the term globalization.
Globalization is the process by which countries' economies become increasingly interwoven. This happens with the increased flow of goods (trade), foreign direct investment, money (finance), and/or people (migration). While globalization is not new, the speed, depth, and scope of the changes (aided by technology), is. Also new to the mix is the enormous power of International Financial Institutions (IFIs) and global trade groups such as the World Trade Organization (WTO) to set the rules of the global economy.
Financial institutions play a vital role in the global economy. They are generally referred to as IFIs, a generic term given to all financial institutions operating on an international level. IFIs range from development entities such as the World Bank and the European Bank for Reconstruction and Development (EBRD), to monetary authorities such as the International Monetary Fund (IMF). These organizations provide loans to governments for large-scale projects, as well as for restructuring and balance of payments (on condition that they make specific changes IFIs believe will boost economic growth). (Holmes 2005)
While each organization came into existence under different circumstances, each is vital to economic growth around the world and to the global economy. For example, the World Bank, also known as the International Bank for Reconstruction and Development (IBRD), provides loans...