Geography Reference
In-Depth Information
once held by specialists, and execute trades by pushing a few buttons (e.g., via e-
trade). Trade on many exchanges rose exponentially as a result. The National
Association of Security Dealers Automated Quotation system (NASDAQ), the first
fully automated electronic marketplace, is now the world's largest stock market;
lacking a trading floor, NASDAQ connects millions of traders worldwide through
the over-the-counter market, processing 2,000 transactions per second. EASDAQ,
the European version of NASDAQ launched in 1996, operates similarly, albeit on a
smaller scale. Facing the challenge of on-line trading head-on, Paris, Belgium,
Spain, Vancouver and Toronto all recently abolished their trading floors. The vol-
atility of trading, particularly in stocks, also increased as hair-trigger computer
trading programs allow fortunes to be made (and lost) by staying microseconds
ahead of (or behind) other markets.
Liberated from gold, travelling at the speed of light, as nothing but assemblages
of zeros and ones, global money performs a syncopated electronic dance around
the world's neural networks in astonishing volumes. The world's currency mar-
kets, for example, trade roughly four trillion U.S. dollars every day in 2007,
dwarfing the funds that changes hands daily to cover global trade in goods and
services. The ascendancy of electronic money shifted the function of finance from
investing to speculation, institutionalizing volatility in the process. Foreign
investments have increasingly shifted from foreign direct investment (FDI) to
intangible portfolio investments such as stocks and bonds, a process that reflects
the securitization of global finance. Unlike FDI, which generates predictable levels
of employment, facilitates technology transfer, and alters the material landscape
over the long run, financial investments tend to create few jobs and are invisible to
all but a few agents, acting in the short run with unpredictable consequences.
Further, such funds are often provided by non-traditional suppliers: a large and
rapidly rising share of private capital flows worldwide is no longer intermediated
by banks but by non-bank institutions such as securities firms and corporate
financial operations. Thus, not only has the volume of capital flows increased, but
the composition and institutions involved have changed.
Globalization and electronic money had particularly important impacts on
currency markets. Since the shift to floating exchange rates, trading in currencies
has become a big business, driven by the need for foreign currency associated with
rising levels of international trade, the abolition of exchange controls, and the
growth of pension and mutual funds, insurance companies, and institutional
investors. The vast bulk (85 %) of foreign exchange transactions involves the U.S.
dollar. Typically, the moneys involved in these markets follow the sun. For
example, the foreign exchange (FOREX) market opens each day in East Asia
while it is still evening in North America; funds then travel west, bouncing from
city to city over fiber optic lines, e.g., from Tokyo to Hong Kong to Singapore to
Bahrain to Frankfurt, Paris, or London, then to New York, Los Angeles, and back
across the Pacific Ocean. (Given the continuous circularity of this movement,
funds can originate anywhere and circle the globe within 24 h).
The neoclassical economic case for capital mobility holds that such fluidity
allows countries with limited savings to attract financing for domestic investments,
