The
global financial system is the worldwide framework of legal agreements, institutions, and both formal and informal
economic actors that together facilitate international flows of
financial capital for purposes of
investment and
trade financing. Since emerging in the late 19th century during the first modern wave of
economic globalization, its evolution is marked by the establishment of
central banks,
multilateral treaties, and
intergovernmental organizations aimed at improving the
transparency,
regulation, and effectiveness of international markets. In the late 1800s, world migration and communication technology facilitated unprecedented growth in international trade and investment. At the onset of
World War I, trade contracted as
foreign exchange markets became paralyzed by
money market illiquidity. Countries sought to defend against external shocks with protectionist policies and trade virtually halted by 1933, worsening the effects of the global
Great Depression until a series of reciprocal trade agreements slowly reduced tariffs worldwide. Efforts to revamp the
international monetary system after
World War II improved exchange rate stability, fostering record growth in global finance.