A New Era of Global Etech-Financial System
Presenter: Adnan Mueshed Chowdhury
Ritsumeikan Asia Pacific University
Theme: Harnessing Technology for a Better World
The world economy in general and the US economy in particular have not experienced such a deep financial crisis since the US Great Depression in 1929 which has shivered the core principles of free-wheeling capitalism. The crisis has urged the US president, Barack Obama, to call for a prompt solution to revamp a giant economy unless the world economy at large would face a dire consequence. No doubt, search for a remedy must precede unlocking the reason of the ongoing crisis so that any prescribed solution is pragmatic enough to get rid of the recurrent crisis in the financial marketplace.
The root of credit crunches is vast enough to spread its complex branches to every spheres of the economy. Looking back to the historical account of former financial crisis helps us to figure out ancestor of today’s crisis. For instance, Minsky (1986) points out that a slight displacement initially at the balanced structure creates a stage of euphoria that leads to a huge devastation in the system. Because, how people would interpret a given displacement depends on the available information that helps form expectation which is a fundamental variable for the functioning of capital market. If expectation is buttressed by imperfect information, market is surely to crash. The same applies to the credit market. Speaking about the origin of sub-prime mortgage crisis, Richard W. Fisher, President and CEO of the Federal Reserve Bank of Dallas, emphasized on this aspect “A good central banker knows how costly the imperfect data”. In the same token, Frank Westermann (2003) in explaining two credit crunches in Germany and Japan, contends,“
The reason for this development is the increased risk of non-performing loans after the credit-boom of the late 1990, the stock market decline after the year 2000 and the banks’ efforts to strengthen and adjust their balance sheets in the light of Basel II and the possible loss of their “triple A” rating”. Informational economist, Stiglitz (2000) also raises the same concern. He argues that the recurrent financial crisis is happening more often than not due mainly to inaccurate judgment by lenders regarding the borrowers’ risk profile. Undoubtedly, inaccurate judgment is governed by imperfect information. Thus, the first step of solving this problem is to how to organize and disseminate information. This is the broader scope of this project. It argues that our financial system can depend on a simple but superior information management system simply changing traditional mood of information flow to digital system. Beyond the scientific borders, a new digital financial system proposes a platform of central financial database centre which will create a scope of collaboration and cooperation between the technologists and the financial experts. Without unlocking the boundary, it is quite impossible to resolve the recurring global financial crisis