VENUE: TRANSCORP HILTON HOTEL, ABUJA WHAT KINDS OF REFORMS ARE NEEDED FOR THE GLOBAL FINANCIAL SYSTEM? BY PROFESSOR DAHIRU HASSAN BALAMI DEPARTMENT OF ECONOMICS UNIVERSITY OF MAIDUGURI P.M.B. 1069, MAIDUGURI E-MAIL: dhbalami@yahoo.com TEL.: 08036435728 BEING A PAPER PRESENTED AT THE CELEBRATION OF 50 YEARS OF CENTRAL BANKING IN NIGERIA, A 3-DAY INTERNATIONAL CONFERENCE ON CENTRAL BANKING, FINANCIAL STABILITY AND GROWTH VENUE: TRANSCORP HILTON HOTEL, ABUJA DATE: MAY 4TH – 6TH 2009

INTRODUCTION OUTLINE The Global financial System (GFS) Perspective of the Global Financial Market The causes of the current Global Financial Crisis Impact of the Global Financial Crisis. * Short term Reforms Bail outs and consumers protection Creation of Global Coordinating Authority Discouraging Intellectual Dishonesty Credit Innovation which should favour aggregate demand Discourage intellectual dishonesty Creation of new rules and confidence Long Term Reforms Reform in the Political Arena Reforming existing institutions and creating new one Introduction of a new Global Reserve currency Reduction of Greed and Corruption in Global financial system Concluding remarks

INTRODUCTION The world’s financial system is an integrated system with many material aspect with the merits and de-merits of integration What are the causes of global financial crisis? What is wrong with current arrangement of global financial system leading to crisis? How does the present global financial crisis differ from the Asian crisis? What are the impacts of the financial crisis at the global level? What kinds of reforms are needed for addressing the current global financial crisis? Will the reforms be local, regional or international? What are the major reforms that might be needed to address the root causes of the financial crisis? How will the reform management mechanism give poor countries a chance to protect themselves within the international system?

MERITS AND DE-MERITS OF GFS The GFS permits access to finance and development, better management of country’s and promote the development of local and regional banking sector. DEMERITS However, it can expose countries to volatility and loss of macro-economic sovereignty due to Global nature of the economies. The current global financial crisis has affected adversely the GFS and threatened the future stability of the financial markets as well as its negative effect on individual economies in the system with its consequent loss of confidence in the system if not corrected or reformed to take care of the inadequacies.

MAJOR INSTITUTION OF THE GFS PLAYERS World Bank- provide funding, take up credit risk and offer financial favourable terms WTO- settles trade disputes, negotiate international trade agreements IMF- keep account of international balance of payment of members states, act as lender of last resort Government institution- Tax authorities, CBS, SEC, Exchanges Private participants- commercial banks, pension funds, hedge funds and private equity Legal framework and * Eurozone * NAFTA * Commonwealth of Independent Nations (CIS)

PERSPECTIVES OF THE GFS Washington concern approach Neo-marxist approach Social democratic approach

Causes of Global Financial Crisis The slump in the US mortgage housing loans Credit crunch/derivatives Huge imbalance between U.S (deficit) and some emerging economies surplus (China) Weak financial institution Exchange rate problem adjusted by system Over-the-counter default swaps derivative Regulatory controls were not adequate

IMPACT OF GFS CRISIS Nationalisation of companies, Fannie Mae and Freddy Mac Bank run in UK- Northern Rock Rising unemployment and job looses Slowing Fall in foreign reserve of most developing country like Nigeria. Rising level of poverty about 50million in 2009 Important of GFC on LDCs Fall in government revenue Fall in exchange rate Deficit balance of payment Falling of capital market Rising of level of unemployment and inflation

ACTION TAKEN The setting up of a United Nation panel to review some of the roles of the IMF and World Bank. This was done through coordination approach by the world largest economies.

Short term reforms Bail outs and consumers protection Creation of Global Coordinating Authority Focus on real stability Discouraging Intellectual Dishonesty Credit Innovation which should favour aggregate demand Discourage intellectual dishonesty Creation of new rules and confidence

LONG TERM REFORMS Reform in the Political Arena Reforming existing institutions and creating new ones Introduction of a new Global Reserve currency Reduction of Greed and Corruption in Global financial system

CONCLUDING REMARKS It is obvious from the past and present that market mechanism can not function efficiency without moderate government interaction. The growing culture of greed and pressure of strong financial incentive to engage in dubious practice, and failure of public authorities to prosecutes and punish complex financial crime in years leading to the present crisis and illegalities is a factors leading to crisis. The reforms whether short or long term should be comprehensive, inclusive and well tialored to provide a suitable GFS.

GRATITUDE I wish to thank the Central Bank of Nigeria and organizers of the celebration of the50years of Central Banking in Nigeria, for giving me the privilege to speak on the important issue relating to the needed reforms in GFS.

Thank you for listening