Tougher Measures Needed to Counter Macroeconomic Effects of Money Laundering
The globalization of the world economy and the growing efficiency of capital markets allow individuals and firms to shift vast amounts of money relatively freely between domestic financial markets and from one country to another. The efficiency of capital markets and their freedom from restrictions on capital movements have also provided criminal elements with an easy means to launder internationally money acquired from illegal activities in particular countries. Although difficult to measure, the magnitude of the sums involved and the extent of the criminal activities that generate this "income" have implications for both the domestic and the international allocation of resources and macroeconomic stability.
Money laundering and measures to counter it have therefore become the focus of intense international attention in recent years.
Money laundering is, by definition, a concealed activity. The-"dirty" money that is cycled through the international capital "laundromats" is generated by criminal activities that take place far from the eyes of the authorities. These activities include, in particular, the production and distribution of illegal drugs, as well as theft and embezzlement, insider trading, traffic in nuclear materials, usury, and prostitution. Although it is impossible to measure directly the size of the net financial gains that accrue annually to those who engage in these activities worldwide, the value of the total stock of laundered money is probably much larger than the GDP of many countries.
The concentration of vast sums of money in laundering operations has generated progressively more sophisticated attempts to launder the assets. Laundering transactions now involve a broad range of financial instruments, including derivatives. And the intermediaries have increasingly included such traditional financial institutions as banks and near-banks, brokers and dealers in securities, and foreign exchange dealers, as well as unconventional and parallel financial markets.
This huge money stream may exert an impact on macroeconomy.
At the national level, large financial flows related to money laundering could influence variables such as exchange rates and interest rates. At the international level, capital movements originating in one center can easily spread to others, thus transforming a national problem into a systemic one.
The transparency and soundness of financial markets are key elements in the effective functioning of economies, and money laundering can threaten both. Criminally obtained money can corrupt financial market officials, and the damage can be long-lasting, because the credibility of markets, though quickly lost, takes a long time to be rebuilt.
Although domestic money laundering can often be fought at the national level, an effective solution to the international money laundering problem is only possible at the international level.
Words you may need:
money launderingотмывание денег
counterv противостоять
magnituden размер(ы), масштаб(ы)
implicationn подтекст, смысл
concealed activityтайная деятельность
drugsn наркотики
theftn кража
embezzlementn растрата
traffic (in)(зд.) торговля (чём-л.)
usuryn ростовщичество
accruev увеличиваться, расти, (зд.) поступать
derivativesn pl производные ценные бумаги
to exert an impactоказывать воздействие
Ex. 13. Read the dialogue, sum up its content and act it out:
Russian: I know that starting from January 1999, the new European currency-the Euro-has been traded in the foreign exchange markets. How will the introduction of the Euro affect the European Union countries?
Foreigner: First of all it is an important step towards European integration. European countries have already set up the EU Council, the European Parliament and the European Central Bank.
R.: How will the monetary policy of the EU be regulated?
F.: By the European Central Bank and its system. It will be using usual financial instruments: interest rates, open-market operations, reserve requirements, etc.
R.: Who will benefit from the Euro?
F.: We all, particularly our business. Business firms will get wider possibilities, first of all, in the money and capital markets. Frontiers are being eliminated, business is becoming international.
R.: As far as I know, some countries of Europe failed to enter the Euro zone, didn't they?
F.: To be exact, the UK and Switzerland refused to enter the Euro system. Others simply failed to comply with some economic and legal requirements.
R.: At the moment the Euro is used in parallel with the currencies tied to it and only for non-cash payments. When will the cash Euro be introduced?
F.: Starting with July 1, 2002, when the national currencies will cease to exist.
R.: I foresee a serious problem here. As soon as the currency issuance and monetary policy become the function of the European Central Bank, the countries will lose their independence.
F.: Yes, it is a serious drawback. But the economic benefits will outweigh it.
Ex. 14. Give extensive answers to these discussion questions:
1. Do rates of exchange influence the external trade of a country?
2. What are the meaning and purpose of Forward Exchange?
3. What are the objectives and methods of Exchange Control?
4. What is "convertibility" as applied to a currency?
In order to get prepared for participation in the class discussion of the questions, write several short paragraphs about:
a) The composition of the exchange market.
b) The structure of the global financial market.
Ex. 15. Prepare a short talk on the following:
a) The major participants of the foreign exchange markets.
b) What is the rate of exchange determined by?
c) Instruments and transactions made in the currency markets (spot trading, futures and forward contracts, swaps, options).
d) Explain the global character of the exchange market.
e) What is arbitrage?
f) Russia's efforts to fight money laundering.