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The collapse of the Bretton Woods system of fixed exchange rates in the early 1970s marked the last major turning point in the evolution of global finance, ushering in the generalized 'non-system' of exchange rate arrangements that survives today. However, at least as important in the development of international financial relations since then has been the enormous growth in the volume of international capital flows. In large part, this growth is attributable to the dismantling of the panoply of exchange controls introduced during the Bretton Woods era to facilitate exchange rate management by central banks under the auspices of the International Monetary Fund (IMF).

Increased capital flows have been directed toward both advanced and developing economies alike. Major users of international funds include Australia, Britain, Canada, New Zealand and the United States, as well as the so-called 'emerging economies'. The emerging economies are a culturally and geographically diverse group of international borrower countries whose membership presently includes Argentina, Brazil, Chile, Colombia, Hungary, the Czech Republic, India, Indonesia, Israel, Malaysia, Korea, Mexico, Pakistan, Peru, the Philippines, South Africa, Thailand, Turkey and Venezuela.

The range of deregulatory initiatives affecting domestic and international financial transactions over recent decades include the abolition of capital and interest rate controls and the entry of foreign financial institutions to domestic markets. These measures, combined with technological progress in telecommunications, greatly reduced transactions costs and widespread financial innovation have broken down barriers separating economies' financial markets.

The domestic financial markets of many economies have therefore been increasingly internationalized in the wake of liberalizing policy initiatives implemented by governments around the world. Financial market liberalization in many advanced economies was virtually complete by the late 1980s. With the removal of previously stringent regulations over domestic and international financial transactions, institutional barriers impeding the movement of financial capital between many regions of the world have now largely disappeared. Accompanying the domestic deregulatory changes were tighter prudential arrangements in advanced economies aimed at strengthening the capitalization of banks and hence the stability of domestic financial systems. Such accompanying arrangements have been lacking in many emerging economies however and this has been a fundamental reason for recurrent financial crises in these economies.

Another way of defining the phenomenon of financial globalization is to say that domestic capital markets have become far more internationally integrated, such a process being the financial counterpart to the worldwide rise in cross-border trade in goods and services. Assisted by significant improvements in information technology and falling transactions costs, this has resulted in record growth in international money flows.

The global liberalization of financial markets has facilitated a phenomenal rise in the movement of funds across country borders. Assisted by major advances in information technology and reduced computing and communications costs, this international capital market integration has greatly improved access to the pool of global saving for advanced and emerging economies. This has given rise to substantially increased capital mobility, with national saving and investment rates no longer as closely correlated as in earlier decades. . .

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