Development Finance or Financial Accumulation for Asset Managers?: The Perils of the Global Shadow Banking System in Developing Countries

Fathimath Musthaq

New Political Economy, 2021, vol. 26, issue 4, 554-573

Abstract: The private finance-led development model, promoted by international financial institutions, has faced a number of challenges. A major criticism is that the model promotes shadow banking, a system vulnerable to cyclical changes in liquidity. I argue that these criticisms do not go far enough because they fail to challenge the dominant understanding of shadow banking as a system of credit intermediation. In this paper, I propose an alternative analytical framework of shadow banking as a system that facilitates high risk-adjusted returns for institutional investors. This framework better clarifies the accommodations emerging markets make to sustain financial flows of which I outline two: (1) the provision of high-yielding financial assets, primarily through the issue of local-currency denominated sovereign bonds; and (2) the liquidity and insurance central banks provide, by drawing on expensive foreign exchange reserves, that enable investors to reap high risk-adjusted returns. The paper argues that rather than facilitating finance (or patient capital) to meet development objectives, a private finance-led model, by promoting the integration of emerging markets into the global shadow banking system, facilitates financial accumulation for global investors.

Date: 2021
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://hdl.handle.net/10.1080/13563467.2020.1782367 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:cnpexx:v:26:y:2021:i:4:p:554-573

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/cnpe20

DOI: 10.1080/13563467.2020.1782367

Access Statistics for this article

New Political Economy is currently edited by Professor Colin Hay

More articles in New Political Economy from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().