Money, Financial Innovation and Financial Instability: A Story of the Present Financial Crisis

Abstract

The experiences from 2007-2010 reveal the fact that globalization associated with financial innovation on the interconnected markets determines a rapid shocks spread. An increasing debt amplifies the vulnerabilities in the financial system. Panic is the key element for failure and comes along with a price drop, a lack of confidence and important losses. The aim of this paper is to create o connection between the concept of financial instability and financial innovation in terms of money dimension. Starting with the theories of the financial instability developed by the economists, we proposed to underline the gap between expectations and real effects of financial innovation, the role of money and their importance. To conclude, we summarize possible lessons and the impact over the financial world, including the psychological potential of the financial behavior.