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A Study On The Rise And Development Of Sovereign Wealth Funds In The Process Of Financial Globalization

Posted on:2011-09-03Degree:MasterType:Thesis
Country:ChinaCandidate:H C ZhuFull Text:PDF
GTID:2189360305957737Subject:World economy
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Financial globalization is due to the development of economic globalization, it features with risk, market spontaneous and a historic progress. The emergence and development of financial globalization is inseparable from the real economic factors such as global production and trade. It mainly performed the accelerated global expansion of international capital flows, and financial liberalization and integration driven by financial innovation.Recently, the status of state capital are increasingly attracted the attention of the world. Sovereign wealth funds are owned and managed by the government, which objecting in pursuing a higher return on capital employed. There have been two waves of the rise of sovereign wealth funds worldwide. After the set up of China and Russia's sovereign wealth funds in the 21st century, sovereign wealth funds have received widespread international attention, and become the focus of extensive discussion. It has enriched the content of international capital flows because of its strong background of a government and enormous capital size. There are many classification results of SWFs, the structure is characterized by a significant concentration of asset size, geographic concentration, establishment of time to focus on sources of funding.The total size of sovereign wealth funds is somewhere between 2-3 trillion dollars. Its funding comes from the rise in energy prices increase and the international balance of payments surplus. On the one hand, most of its money came from export revenues, the size of sovereign wealth funds had a positive correlation with international oil prices. On the other hand, a country's foreign exchange reserves increased to a certain amount, when "excess" foreign exchange reserves more than liquidity needs, would lead the central bank to take a more active reserve management. Sovereign wealth funds is the use of the country's foreign exchange reserve funds, in order to obtain maximum benefits and to conduct overseas investment, and many Asian countries have set up their own sovereign wealth funds.Large amount of foreign exchange reserves of developing countries continuing to increase was rooted in the irrational of international monetary system. The Bretton Woods system determined the status of U.S. dollars as international hegemony; the United States is in the center of the international monetary system. The Jamaica system was established in response to exchange rate fluctuations and balance of payments imbalance, thus, non-major currency countries must maintain an appropriate foreign exchange reserves to cope with the transaction risk and preventive risk. As the gradual establishment of the Jamaica system, bringing the tremendous growth of foreign exchange reserves. Due to the international monetary system is unreasonable, exchange reserves is the performance of the international financial market imbalances in the global foreign trade. The developing world's foreign exchange reserves concentrated in growing, while developed countries contribute to only a very small part of the reserve. The surplus foreign exchange reserves of a country would result in a wide range of negative effects. First, it will lead to excess domestic liquidity in domestic market and asset price bubbles. Second, it had to bear the currency devaluation and with risk low yields of buying foreign government bond, exports resource-intensive in exchange for their foreign exchange assets, faced with the risk of loss and shrinking pressure.Sovereign wealth funds are the result of financial globalization developing, the development of the product has become an important influence power in the financial markets, and its development is inseparable from the globalization of financial markets, the positive or negative impact operation of financial markets. When the sub-prime crisis, global financial market liquidity squeeze, a serious shortage of confidence in the market, sovereign wealth funds injected liquidity into financial institutions in crises, and its long-term investment characteristics, with no short term redemption of the funds requested and non-leveraged operational features, it is considered to be a stabilizing force in international finance. On the other hand, because of the large sovereign wealth funds amount, and low transparency, it often leads people concerns of price fluctuations would cause when it to invest in the market. But generally speaking, sovereign wealth funds had limited impact on asset prices.As sovereign wealth funds have a national government background, low transparency, hidden information and mystery, it increases protectionist pressures. The sovereign wealth funds institute indicators show that the international transparency of sovereign wealth funds generally is not high. Developed economies, set a variety of barriers to prevent these capital investments the country's financial markets because of the lack of transparency in these capital and the short of regulatory rules, resulting in financial protectionism. The danger of financial protectionism will be far more than trade protectionism; will soon lead to other forms of protectionism. Economic globalization will suffer a new major obstacle.The regulation of sovereign wealth funds and investment rule are gradually reaching into an internationally consensus. Sovereign wealth funds need to improve transparency, and requires for an open and transparent, fair competition environment. For the sovereign wealth fund recipients, they are required not set up protectionist barriers or restrictions. "Santiago Principles" is the consensus reached by the international representative, transparency as the basis for consistent problems of sovereign wealth fund, mainly centering on the legal framework for sovereign wealth funds, objectives, macroeconomic policy coordination, corporate governance structure, investment and risk management framework, and several other fronts, designed to regulate and guide the investment behavior of sovereign states and risk management, the establishment of an open and transparent international investment environment. States the issue of transparency of sovereign wealth funds have been given a high degree of concern, among sovereign wealth funds will combine its own actual situation, follow the step by step process, step by step transition from low to moderate degree of transparency transparent, honest and transparent. Rapid increase of China's foreign exchange reserves no longer moderate and showed a sharp widening ever since 2003, it lead excess liquidity to the domestic market, and the yield pressure to central bank management of foreign exchange reserves. To achieve the strategic goal of sovereign wealth fund, China Investment Corporation was established to enhance the market-oriented business operation rules and to avoid the risks resulting from acts of government administration but according to market rules of competition to ensure the independence of operations, with the primary purpose to reallocating of foreign currency assets and increasing the value of the reserves. China's sovereign wealth fund should be in the non-disclosure of commercial secrets of the premise, as much as information disclosure, and establish a good international image, and draw on the experience of foreign sovereign wealth funds to improve their transparency, thus, it can directly response to financial protectionism. At the same time, sovereign wealth funds must be actively involved in formulation of international rules, but not in a position of passive acceptance. And work closely with large sovereign wealth funds in the world with state cooperation, and establish strategic alliances. Strengthen the cooperation with international organizations to build a favorable investment environment and developing countries'Sovereign wealth funds should become the rule dominator.
Keywords/Search Tags:Financial Globalization, Sovereign Wealth Funds, Foreign Exchange Reserves, Financial Protection
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