Financial system, in a nutshell, is a mechanism that allows exchange of funds between investors, lenders, and borrowers. Such system can work on firm-specific, national, or global levels and are made up of closely-related facilities, institutions, and markets geared to give a regular and efficient link between depositors and investors. Financial systems allow the funds to be transferred, invested or allocated among different economic sectors. It has the ability to impact in a major way the different countries’ economies, and can spell its rise or downfall. In Asia, finance systems played a major role in the region’s leading economies like Japan, Korea and China. There are many ways and different degrees that financial systems mattered in these advanced economies. The rapid growth of the economies in these countries is perhaps the best indication that indeed, financial intermediation is, to some extent, successful. This only shows that finance do matter.
Financial Development Implications For These Asian Economic Giants
It was not always like this for the three of the economic giants of the Asian region. Barely 80 years ago, were these countries plunged into economic chaos because of ideological and political divisions as well as the Second World War. Little by little, however, they emerged from this chaotic situation, mainly because of good and sound financial development, which later made them into economic giants that they are today. These countries were able to improve their resource allocation and also developed a highly efficient distribution of financial resources. In the case of China, the country’s financial repression during its initial stages of economic catch-up, even yielded positive results. Finally, the financial liberalization of these three economic giants during the later part included development of market-supportive regulatory systems along with effective implementation.
The Role Of Government
The government’s role in the financial system has always been viewed by economic managers and market analysts as fundamental. It is the government that makes the rules and how it is implemented or followed. It also creates the legal structure for the creation, as well as operations of markets, financial instruments and institutions. On the other hand, the money supply is determined by the respective Central Banks of these Asian governments, which then seek to attain price stability and also provides practical administration and oversight along with other regulatory authorities.
Finance Truly Mattered
Korean, Chinese and Japanese policymakers believed that in order for them to rise out from the ashes and become economic tigers in Asia, they need to have an efficient financial system. The economic managers of these countries set out to help in the development, operation and, at some point, control of their financial systems. Their respective governments learned in the process that financial intermediation can be best determined on competitive financial markets, macroeconomic stability, effective regulation, and control over inflation.
These three Asian economic tigers have become the models of developing countries in the region. In ASEAN countries like Thailand, Philippines and Indonesia, their respective economic managers are deeply studying how these economic tigers made it. Their initial strategies include disseminating better technologies to enhance the financial system’s functionality. With ASEAN governments’ strong commitment to economic development, they will soon also rise as economic tigers of ASIA.