Financial diplomacy -- a subset of economic diplomacy -- changed more slowly. The International Monetary Fund and World Bank, while not achieving universal membership, remained the dominant institutions. A major upheaval came with the Asian financial crises that began in 1997 in Thailand, Indonesia and South Korea and proved highly contagious, spreading far beyond East Asia. The new financial diplomacy is retrogressive in all four areas. Central bank independence keeps politicians out deliberately to avoid the errors of government. This makes it harder to win public support when necessary. Meanwhile, the credit crunch and the reactions to it are already having their economic impact. Just as generous credit stimulated growth, tighter lending standards are restraining it. Loosening monetary policy in the US and UK has made these economies more vulnerable to inflation. In August 2008, central banks dominated both decision-making and negotiation and were extending their authority. This is proving a short-lived episode of financial diplomacy, rather than a new trend.
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"FINANCIAL DIPLOMACY AND THE CREDIT CRUNCH: THE RISE OF CENTRAL BANKS"Please download to view full document