Compendium: Financial Regime

The term ‘Financial Regime’ is used throughout the SMP Compendium to refer to the political forces in command of a nation-state’s monetary policies. A lot of confusion about how monetary policies are conducted and realized within conventional economics can be cleared by defining the significance of Financial Regime as a term. The term itself was introduced by this author to emphasis the economic reality that a nation-state’s financial and economic activities fall within the concerns of the State.

The key power structures that are definitive of the term are the Head of State, the Legislature, and the Central Bank. The Central Bank is tasked with maintaining the Value of the Currency, including the rate at which it is allowed to depreciate or appreciate at any given point. The Legislature and the Head of State are the political forces that must decide and approve upon any changes to specific aspects of their nation-state’s issued Currency. It can range from something as simple as introducing a redesigned banknote or minted coin into circulation to more important ones like altering the Exchange Rate. Ideally, the Head of State, Legislature and Central Bank should be coordinating their actions alongside the economy so as to achieve proper Synchronicity between the State and the rest of the nation-state.

The reality is that there are inherent differences between how the Financial Regime conducts itself and it depends on whether it is Liberal Capitalist or Socialist in terms of political outlook. The differences that separate the two are so fundamental that it can argued that they stem from the manner in which the State governs the economy.

If the nation-state is Liberal Capitalist, there is minimal or no Synchronicity between the State and the economy, which in turn extends to the Central Bank as part of the Financial Regime. Rather than the State, the Financial Markets and commercial banking establishments set the parameters. An example of this has been the proliferation of Floating Exchange Rates, where the Forex (Foreign Exchange) Markets are able to decide the Exchange Rates between Currencies. It is doubtful that the Legislature will be determined to cast aside petty Parliamentarian squabbles because in addition to carry out their party’s policies, they must be in the position to win the next electoral cycle. In a time where the Heads of State in many nation-states are elected as part of political parties rather than as hereditary or apolitical rulers, the Head of State is not an exception. Given these considerations, it becomes natural for the Financial Markets and commercial banks to be coordinating with the Central Bank on monetary policies.

Conversely, if the nation-state is Socialist, there will be Synchronicity between the State and economy. This is assuming that the Head of State and the Legislature are determined to collaborate and work together in Solidarity to further the national interest. The Central Bank, as part of the Financial Regime will not be relying on Financial Markets and commercial banks to coordinate monetary policies. It will instead rely on the Head of State signing and authorizing any new money policies with the explicit approval of the Legislature, with the Central Bank executing those policies. This arrangement is made possible thanks to the nation-state operating along the parameters of a Council Democracy, which has its own distinct style of governance.

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