The global financial system is the worldwide framework of legal agreements, institutions and economic actors (formal and informal) that jointly facilitate international flows of capital for investment and trade financing.
Since emerging in the late 19th century during the first modern wave of economic globalisation, its evolution is marked by the establishment of central banks, multilateral treaties and intergovernmental organisations aimed at improving the transparency, regulation, effectiveness of international markets and the creation of Global Cities like London, New York, Tokyo, Paris and Singapore.
In the late 1800s, world migration and communication technology facilitated unprecedented growth in international trade and investment. At the onset of World War I, trade contracted as foreign exchange markets became paralysed by money market illiquidity. Countries sought to defend against external shocks with protectionist policies and trade virtually halted by 1933, worsening the effects of the global Great Depression until a series of reciprocal trade agreements slowly reduced tariffs worldwide. Efforts to revamp the international monetary system after World War II improved exchange rate stability, fostering record growth in global finance.
A series of currency devaluations and oil crises in the 1970s led most countries to float their currencies. The world economy became increasingly financially integrated in the 1980s and 1990s due to capital account liberalisation and financial deregulation. A series of financial crises in Europe, Asia, and Latin America followed with contagious effects due to greater exposure to volatile capital flows. The global financial crisis, which originated in the United States in 2007, quickly propagated among other nations and is recognised as the catalyst for the worldwide Great Recession. A market adjustment to Greece's noncompliance with its monetary union in 2009 ignited a sovereign debt crisis among European nations known as the Eurozone crisis.
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