Financial Liberalisation Essay Example | Topics and Well Written Essays - 1750 words

Financial Liberalisation - Essay Example In the light of this irony, this paper intends to look at liberalization from the Asian perspective, specifically from the viewpoint of China and South Korea. The idea of liberalization holds at its core the notion that there be a total and complete opening of the market so that trade and capital can freely enter and move out without the burden of tax, tariffs and other forms of governmental control. Coupled with this is the idea of deregulation, which implies no governmental intervention or minimal governmental intervention in the dynamic movements of the market. This perception of liberalization has in fact has been carried over to all aspects and players of the market sparing nothing even financial institutions. The notion of financial liberalization connotes the idea that "financials markets are left to their own devices"(Soros, 2002,p 112). This inspite of the fact that financial market are basically different in nature from that of actual markets since the latter is working from known quantities (physical goods and services) whereas the former is technically working from unknowable quantities. Being such, the moment that financial m arkets are left on its own they are liable to go to extremes and breakdown. Thus, financial liberalization, though pinning for a free, level market playing field, is an oxymoron since financial institutions are basically not to be left at their own devices but must be supervised and to some extent managed by monetary authorities. Take the case of China. China's opening to international foreign trade is quite new. Considering the fact that China has just started opening her doors to foreign investors in the 60's. But despite this, the staggering improvements in financial markets in China is worth noting. On 1984, China has undertaken financial reforms and new monetary policies. Under the financial reforms, China has established its central bank known as People's Bank of China (PBOC) who has the direct say on matters pertinent to national financial institutions. While, four specialist's banks have also been established as the PBOC's arm in commercial banking functions. They are the "Industrial and Commercial Bank of China, which caters for urban enterprises an residents; the Agricultural Bank of China, which caters for rural enterprises and residents; the People's Construction of China, which mainly caters for construction enterprises; and the Bank of China which specializes in foreign exchange business" (EAAU, 2000, p 113). Further more, in 1994 three new banks have been established and these are: "State development Bank (lending for major infrastructure projects); China Import and Export Bank (providing finance for traders) and China Agricultural development Bank (providing funds f or agricultural crop purchasing)"(EAAU, 2000, p114). The latter have been established for the main purpose of removing policy-lending obligations from the four state-owned specialist's banks so that it can develop into "commercial entities" (EAAU, 2000, 114). These banks perform their specific functions over and above the normal banking transactions of accepting deposits and withdrawals, offering loans and guarantees, investments in Chinese treasury and government bonds. The most significant manifestation of financial liberal