Mamochkina M.

Scientific Supervisor: Ysikov V.A.

GLOBAL FINANCIAL CRISIS: REASONS FOR ITS ORIGIN AND WAYS FOR SURMOUNTING

The actual global crisis that has gripped all the countries, including Ukraine, shows that significant drawback has been made in a monetary policy and therefore the latter does not meet the era imperatives. In addition, the processes in modern monetary mechanisms are misunderstood, which does not allow to design proper practical recommendations.

The global damages of the financial crisis amount to five trillion dollars. It is 160 Ukrainian budgets. The world economy undergoes a great instability, risking coming to the biggest collapse since the Great Depression.

The crisis started in 2007 in the USA and spread all over the world. Primarily, it is related to a dollar, which became a world reserve currency, and did not meet its new function. Therefore, the ill functioning of the world monetary mechanism grounded on a dollar as a reserve currency is directly related to the global crises.

The international currency system based on a dollar, has significant drawbacks. The exchange of the currency of any country into the international one with no liabilities and responsibilities, provided that country preferences and advantages to carry out the credit expansion. As that, having created great opportunities for its businessman not only for abuses, but also for misdeeds.

Abolishment of restriction for money emissions has provoked inflation in world scale. The current international currency system has no mechanism for preventing the sustainable imbalance in trade. Thus, nothing hindered the USA to accrue the current account deficit, which since 1980 reached up to three trillion dollars. That deficit was like an economic subsidy to the ROW, swamping the globe with dollars that became a new international reserve asset instead of gold. This actual crisis with good reason is called a dollar crisis, since it was originated by the accrued excess dollar reserve assets which ignited the devaluation of a dollar itself.

The gold-money system with its peculiar mechanisms for self-regulation and restriction to issue excess money, that prevented the crisis origin, has been replaced with the monetary system, that is deprived those mechanisms and needs and conscious regulation. The matter is, that the sustainability of gold-money system was guaranteed with the important factor like money intrinsic value, while under monetary system the money is not ensured with that value. As far as a dollar became the world international currency, the performance of that role with all the rules and directions required to the functioning of monetary system, through the world one, should be under control of the world community. Only through strict restriction and rigid control could the excess money issue be prevented and the trade imbalance is averted. And the absence of those phenomena enables the USA to accrue the enormous deficit of current account. The deficit served the economic subsidy to the ROW, swamping the globe with dollars that became a new international reserve asset instead of gold.

There are dozens of other ways for the state’s direct and intermediate effect to produce on the functioning of value currency mechanism, enabling to curb the elemental forces, which make its functioning, pricing, custom duties, taxation, and subsidization. All those effect the circulation of the commodities, and, consequently, the money creation, and increase or decrease the inflows of reserve currency. Thus, the imbalance occurred, that destabilized the world economy. The main reason of destabilization is a huge deficit of the USA trade balance. Its current financing has led to great disturbance in the world economy, and creation of bubble economy in the USA, which while bursting, plunge the whole globe into heavy crisis.

The deficit of the USA current account has flooded the globe with the dollar liquidity, resulted into the credit expansion, excess crediting, and intensive growth of production in the countries with great surplus of trade balance.

Hence, the global economy has been formed. Nobody negates the fact. But now we should admit that the global monetary base and global monetary supply also has been built.

Today, the money supply is out of control. Therefore, that phenomenon should be backed into the regulated channel. That process can not develop spontaneously any longer. Those objectives could be met through creation of international reserve currency, and establishment of the World Bank. Only by means of mentioned above measures the disadvantages of current monetary policy can be eliminated, preventing the American trade deficit from flooding the world with dollar liquidity.

The proposed actions will help to develop clear recommendations on the balance restore in the global economy, and to create grounds for the sustained economic growth in future.