L8 - money flows like mercury: geographies of finance

Question 1

Financial geographies at multiple scales

Answer 1

• Huge component of the global economy
• Can be looked at in many scales = from household to global
  International
• Geographies of debt/credit
  o Debt/banking crisis, debt forgiveness
  o Lending and accountability
• Remittances = large chunk of gross domestic income (e.g. Cambodia = 4% of GDP is made up of remittances)
  National policies to attract/shape foreign investment
• And the way these are disciplines by financial markets
  Micro-credit initiatives
• E.g. Grameen Bank, small loans to those too poor to qualify for traditional bank loans, no collateral
• New money = micro trade schemes

Question 2

Money flows like mercury

Answer 2

• Conceptual abstraction: money flows like mercury, not water
• Due to propensity and properties of quicksilver
• Quicksilver is poisonous = it is very valuable but in high quantities can be very poisonous

Question 3

Exlusion/inclusion

Answer 3

• Money is about inclusion/exclusion = can be a part or can be left out due to various mechanisms
• Can be on an international level, or at a household level
• Ratings agencies = group of companies that provide ratings for the trustworthiness/creditworthiness of money (best score is AAA+)
  o Determines a rating for a country = the rating determines how much it costs the country can borrow money at, or how much it costs other countries to borrow domestic money

Question 4

Narrative about finance and dev

Answer 4

• red lining in USA

Ferguson, 1999

Question 5

Define financialisation

Answer 5

the increased significance of the financial sector vs. other sectors

Question 6

Define financial integration

Answer 6

the propensity for financial decisions in one place to influence conditions in another

Question 7

Finance and financialisation

Answer 7

Standard view: financial system “channels funds from lenders to borrowers”
= true, but a-spatial and ‘neutral’
- Financial institutions don’t just provide credit
o Also design, produce and sell increasingly sophisticated products (financialisation of economy)
- Financial system incorporates individuals, cities, nations
o Via investments and borrowing
o Via increased taxation and/or cuts in public expenditure (to pay debt)
- Places (and people) judged by their ability to accumulate wealth and capital (disciplining power, constrains action)

Question 8

Money flows in and out of economy

Answer 8

BoP

• current account (exports minus imports)
• financial account (LT transfers) e.g. aid
• missing figures = capital flight or illegal transactions

Question 9

Architecture of financialisation

Answer 9

History
- Payment for cross-border trade
o Rise of Italian city-states, Amsterdam, London (London became nucleus of global financial system)
Financial surpluses as the product of accumulation
- ‘spatial fix’ – Harvey (1981)
1870-1918
- Benchmark for financial globalisation
- Classic ‘gold standard’ era
Inter-war period
- Contraction
Post-war, Bretton Woods System
- 1944-1971
- Stability in international payments and exchange
- Gave some leeway for national governments
o National currencies pegged to US dollar
o With hindsight, constrained the disciplining power of financial markets
1980s to present
- Financialisation
o Growth in size of financial sector relative to other sectors
o Growth in power of financial markets
o Deregulation of finance markets
 e.g. London ‘big bang’ Oct 1986 – removed restriction on stock and bond trading
 e.g. drove internationalisation of formerly ‘national’ banks
o Securitization (turning concrete assets into tradeable financial securities)
 e.g. chopping up existing mortgages into parts that could be packaged and traded
o Flexible exchange rates

Question 10

Asian financial crisis

Answer 10

Currency crisis in Thailand, July 1997
• CB of Thailand gave up supporting the value of the baht against the dollar
• left to ‘float,’ the baht collapsed
Fall in value of assets, failure to repay loans  banking crisis; economic crisis
Regional effects: Thailand,
Indonesia, South Korea,
Philippines and Malaysia

Question 11

Finance and the real economy

Answer 11

Finance and the real economy are not completely independent (see Hall 2018, Chapter 4):

• Circuits of capital (again!)
• Role of finance in corporate activity
• Co-constitutive relationship between finance and regional economies (Coe et al, 2014)

Question 12

Global financial crisis impacts on developing countries

Answer 12

Two mechanisms
- Trade – world exports down nearly 11% in 2009
- Finance – FDI down by 20% in 2008
Fall in world output, affects wide range of countries (dispersed geography of global manufacturing)
- Contraction greatest in C and E Europe (nearly 7% down; vs. 8% growth in 2007)
- Growth continues in China, India, MENA and SSA
Impact on poverty?
- Adds 64 million to those on $2 per day (Chen and Ravallion 2009)
- But less than expected?
o Impacts greatest on middle income countries, not on poorest
o Countries that export technological goods rather than labour-intensive goods