FINANCIAL SYSTEM, GROWTH AND ECONOMIC DEVELOPMENT
Author Name: Sneha Thacker (MBA FINANCE – 10010)

PUBLIC FINANCE
Study conducted by Prostebi. L states that the important areas of development of the public financial management system are the development of an effective multifaceted mechanism that provides opportunities to ensure the reliability and predictability of public administration bodies actions, their decision-making based on legally defined rules; carrying out a systematic assessment of the public finance management effectiveness; strengthening the responsibility of state authorities for actions and inactions; maintaining an appropriate level of the government revenues and expenditures ratio. Institutional changes in the financial and economic environment complicate socio-economic processes at both the micro and macro levels, which augments the need to ensure the steadiness and stability of the public finance system. There is currently an increase in the share of revenue and a decrease in the share of general government expenditure in GDP of the EU countries [Prostebi. L (2020) ]

INCOME INEQUALITY
Sustainable finance seeks to increase the contribution of finance to sustainable growth. Study conducted by Rodriguez Fernandez, J.,M. states that the financial inclusion induced by banks contributes positively to financial stability and to reduce income inequality. Financial crises have devastating effects in terms of income inequality because low-income households are the most vulnerable group to any shock that adversely affects the financial system, and provokes a situation of credit rationing or even financial exclusion. The financial crisis that started in 2008 provoked the return of inequality in advanced countries to levels typical of a century ago. Income inequality has increased in recent years, especially in advanced economies, and it is expected to get worse as a consequence of the Covid-19 pandemic crisis. Recent studies present arguments linking income inequality to the financial crash. Ruza , de la cuesta support the view that the “financialization process” experienced over the last decades decisively contributed to the global financial crisis. [Rodriguez Fernandez, J.,M. (2020)]

SUSTAINABLE DEVELOPMENT GOALS
Thomas Lagoarde-Segot states that Economic research has a role to play in identifying new financing pathways permitting to deliver timely and adequate flows of “mission-oriented “public and private investment to achieve SDGs. The ultimate objective of this research agenda should be to inform action needed by policy makers, financial actors, and public and private investors in order to upscale SDG financial flows in response to sustainability demands. According to Thomas Lagoarde-Segot We thus need to turn the order upside down and consider the financial system from the perspective of social and ecological constraints (and not the other way around) in order to respond to the challenges of the 21st century. This implies breaking away from “financialized technical culture,” which tends to see everything from the point of view of an investor. [Thomas Lagoarde-Segot (2020)]

RISK MANAGEMENT
This article states that SMEs plays an important role in every market economy. “Financial risk refers to the possibility that a business’s cash flow does not suffice to pay creditors and fulfill other financial responsibilities” e managers are required to constantly on their awareness of risk and improve financial management to minimize the possibility of risk occurrence and mitigate its harmful effects. Corporate earnings and risk are in correlation, and risk is necessary for enterprises to obtain good profits. Hence, there is a positive relationship between the returns and risk of an enterprise. Study by Belás, J. states that greater the income, greater the risk, while the smaller the returns, the smaller the risk. The long-term effect of financial risk on SMEs includes financial distress and bankruptcy; therefore, proper management is required to minimize this risk with appropriate investigations of factors influencing potential bankruptcy. [Belás, J. (2020)]

FINANCIAL CRISIS
The financial system is an element of the economic system and is characterized by a specific specificity of operation. A financial system is a complex set of institutions, instruments, financial markets and the rules by which they operate. This study by Hala,M. proves that the relationship between the development of the financial system and economic growth has once again become an important topic of analysis in economic literature. This crisis, having a global character and the magnitude of its negative effects on the real sector has had a strong impact on the perception of the importance of the financial system for the economy. It should be noted that this is not the last financial crisis that has occurred since the 1990s. During the credit booms, there were times of a stronger inflow of foreign capital, which differed from direct investment – portfolio investment and interbank investment. Interactions with the asset market, in particular with the real estate market, play an important role in the growth mechanism of the credit boom.[ Hala,M. (2021)]

BUSINESS FINANCE
Study conducted by Safkaur, O. states that Crisis in a very dangerous situation that can have a big impact on everyone. In crisis management there is crisis communication. Crisis communication is the key to success of crisis management. World Health Organization in 2020 expressed the problem which will interfere with the smooth running of everyday business, the problem will interfere with the good name and image of the company, Problems can damage the company’s work system as a whole. In organizational management the current conditions in which humans will face things that are shocking, unpredictable such as extreme weather, conflict, warfare, unilateral policy inconsistencies, and the discovery of new technologies. Anderson proved that there are still many who work even though they have been appealed by the government to continue working because their income is small enough to cover their daily needs. With the reduction of community activities outside the home due to lockdown and social distancing, it has had a negative effect on the business world and society. [Safkaur, O. (2020)]

IMPACTS
Study conducted by Decebal. R. F. states that Economic and financial crime is closely related to the changes and the development of societies and it may actually rise in the shape of individuals’ innovation for adapting to the changes in society business people are able to invent different forms of white-collar crimes, such as tax evasion, money laundering, and other types of fraud, while poor people may engage in illegal activities, such as prostitution, gambling, and drugs . “crime is part of society just as natural as birth and death, and a society without crime would be over-controlled pathologically”, so that “theoretically, crime could disappear completely only if all society members would have the same values, but such a standardization is neither possible nor desirable” . [Decebal. R. F. (2021)]

CHALLENGES
The creation of the Internet of things (industrial Internet), artificial intelligence and blockchain technology, the accelerating capitalization of crypto currencies served as the basis for the emergence of an innovative financial ecosystem that is fundamentally different from the traditional one, which is forced to confront new challenges and threats. Study conducted by Buklanov .D states that On the one hand, the functionality of digital technologies creates a new platform for human financial activity including new types of investment assets resulting from block chain technology, the availability of financial products and services and their personification through the processing and analysis of big data, etc. but, on the other hand, moving more and more financial activity into virtual space, changing the format of interaction from traditional Business-to-Customer to Peer-to-Peer and even Digital Profile-Digital profile, The development of Fintech companies, digitalization of the financial sector has a wide range of consequences.[ Buklanov .D (2021) ]

GREEN BOND MARKETS
Green Bond Markets to Facilitate Green Finance .Green bonds are fixed-income securities whose popularity has increased significantly in the past few years. Study by Phoumin, H. states that green bonds tend to show lower returns than their conventional counterparts. Green bonds are financial instruments designed to fund green infrastructure and green technologies. The COVID-19 pandemic and the economic downturns resulted in a drastic reduction in fossil fuel prices. Overall, traditional finance is failing to provide enough funding for green projects, so there is a need for innovative finance or the establishment of a green financial system to fill this gap. Introducing new financial instruments such as green bonds besides the conventional banking system will help fill the green finance gap required to achieve the related SDGs.[ Phoumin, H. (2021)]

DIGITAL CURRENCIES
A study has been carried out by Helder Sebastião on Making Sense of the Digital Money Revolution. Money is a tangible or electronic item universally accepted as a medium of payment in immediate or deferred time for goods, assets, and services in a given economy or socio-cultural environment. we may classify money into three types, in chronological order: Commodity, representative, fiat, and scriptural or electronic money. First, users claim for faster, easier, more efficient, secure, and universally accessible payment services, which only digitalization can provide . This desire led to an intensified use of debit and credit cards, namely in e-commerce transactions, and catalyzed the use of new technologies to circulate money, such as electronic wallets and contactless payments. Second, the digitalization of retail payment systems reinforces its role and creates a substitution effect on other forms of money, namely cash. Third, the huge success of cryptocurrencies, and particularly Bitcoin, attracted extensive media coverage and the attention of individuals and, increasingly, institutional investors, sustaining the idea that there is an alternative to fiat money and creating the perception that Blockchain provides the ideal platform on which non-governmental currencies may be issued, managed, and traded.[ Helder Sebastião (2021)]

CONCLUSION
Since the beginning of the century, the world has been consistently growing at around 3%, without following a sustainable path. Nowadays, the financial sector is struggling with a global crisis caused by the negative effects of the COVID-19 pandemic that began in 2020. In a short time, the reduction of production and consumption in the country’s most affected by the pandemic; it will lead to a global recession. A positive effect may be the acceleration of the development of the digital economy, in particular the services market. There is currently an increase in the share of revenue and a decrease in the share of general government expenditure in GDP of the EU countries. Previously, the theory was that economic growth had a strong influence on the development of the financial system. It was only at the beginning of the 21st century that much more attention was paid to the possibility of a cause-and effect relationship between the development of the financial system and economic development
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