Modern Financial System Research Articles

PUBLIC-PRIVATE PARTNERSHIP AS A FOUNDATION OF THE FINANCIAL STABILITY OF THE STATE AND HOUSEHOLDS IN THE CONDITIONS OF HEALTH CARE FINANCING TRANSFORMATION IN UKRAINE

Among other mechanisms for maintaining the financial stability of state/local finances and household finances, the potential of public-private partnerships is significant. In this regard, the constructive interaction of the state and business in order to solve common financial, economic, and social problems is especially important. The article defines the role of public-private partnership in supporting the health care sector for providing the population with high-quality medical services and at the same time preserving the financial stability of the state and households; moreover, measures for its development are justified in the research. An assessment of the expenditures of the consolidated state budget for financing the industry, the degree of implementation of state programs and the results of self-assessment of the financial status of households for health care services in the conditions of the transformation of the mechanism of financing the industry and the Russian-Ukrainian war, under which the modern financial system of Ukraine functions, was carried out. The problems of implementation of the planned indicators of the state budget for the financing of the industry have been identified, which need to be solved. The advantages of public-private partnership for the state, private partners, and society are summarized. It is shown that the intensification of the process of implementation of projects/programs based on the principles of public-private partnership in the field of health care will ultimately contribute, other things being equal, to maintaining greater stability of household budgets and the state budget, increasing the efficiency of budget funds spending, as well as expanding the number of medical services and improving their quality. Measures for the development and support of public-private partnership are proposed, which will contribute to balancing the interests of the state, the private sector, and society to eliminate/solve problems in the field of health care under difficult conditions of war and the decline of economy, which will eventually become the basis for supporting the financial stability of the state/local budgets and finances of households and the private sector itself.

Innovation Practices and Performance of Islamic Banks in Nairobi-Kenya

Purpose: The dominant feature of the modern financial system is a high pace of innovation practices, both in terms of their number and value. Thus, it is important to analyze their influence on the financial system. The current study aimed at determining the effect of innovation practices on the financial performance of Islamic banks in Kenya. Specifically, the study sought to determine the influence product innovation practices, process innovation practices, technological innovation practices and market innovation practices on the organizational performance of Islamic banks in Kenya. This study was informed by the following theories and models: the innovation diffusion theory of innovation, the Henderson-Clark model of innovation, the Task Technology Fit theory of innovation and the Shareholder’s Wealth Maximization (SWM) Theory.
 Methodology: The study adopted a descriptive research design and targeted 3 Islamic banks in Kenya with a total of 142 managers. The sample selection was scientifically guided using the Yamane (1967) simplified formula to calculate the sample size of 105 respondents. The study used structured questionnaires to collect the data. In order to ascertain how valid and reliable the questionnaires are, a pilot study was carried out. Descriptive statistics was used to collect summary statistics including means and standard deviations while inferential statistics helped in measuring the causal relationship between the variables and included correlation and regression analysis. The generation of the statistics was through SPSS program (v.25.0). The study employed both figures and tables to present the results of the study.
 Findings: The results established that product innovation practices, process innovation practices, technological innovation practices and market innovation practices positively and significantly affect the organizational performance of Islamic commercial banks in Kenya. This is shown by respective beta values of 0.398, 0.311, 0.443 and 0.295 and respective significant values of 0.002, 0.009, 0.000 and 0.01.
 Unique contribution to theory, practice and policy: The results bears the implications that increasing each of the variable with one unit results to increase in organizational performance levels of Islamic commercial banks with respective beta values. The study recommends the Islamic commercial banks operating in Kenya to enhance their product innovation, process innovation, technological innovation and market innovation practices since the practices positively and significantly affects organizational performance.

Finance Must Be Defended: Cybernetics, Neoliberalism and Environmental, Social, and Governance (ESG)

In the last decade, interest in environmental, social, and governance (ESG) surged dramatically. This article contends that corporate perspectives on ESG—as managing risk and/or returning expected value—are insufficient to account for developments presently unfolding in the ESG finance space. There, novel derivative tools are being developed and deployed, promising to flip the sustainability market on its head. Unlike other sustainability metrics or strategies, ESG derivatives do not attempt to price a given firm’s risk profile in light of the environment, but rather seek to price the risk profile of environmental catastrophe itself. What this translocation of risk prophesies is the direct application of financial engineering to the climate. In this article, re-visiting the late work of Friedrich Hayek and tracing his legacy in Michel Foucault’s lectures on neoliberalism frames my argument that the modern financial system from which these derivatives spring is best understood as a cybernetic one. Cybernetic systems are ones that endeavor to negate entropy and maintain organization by means of information feedback loop-based learning; in finance, this takes the form of Hayekian price discovery. With ESG derivatives, the system of cybernetic finance is presently setting to work converting climate uncertainty into pricing efficiency. Because derivatives such as these represent the polity’s most advanced media for the meaningful sensation of threats, what emerges about the environment from the trade of these products will soon be fed backwards as a powerful set of inputs to governance, shaping how the climate is brought into representation and what responses to its associated crises are possible.

The Impact of FinTech Merge Operation on Financial Performance: Evidence from a Banking International Sample

The FinTech phenomenon has recently had a significant impact on the financial sector, opening up new potential for cost-saving measures and providing increasingly sophisticated financial services. On the other hand, FinTech has helped new players—typically technology companies—enter the financial sector and financial intermediation. Financial institutions have started cooperative and merging operations. As a result, to incorporate the new technology created in the market into their business model. This study aims to determine whether banks engaged in a FinTech merger experience improved financial performance. The research hypothesis is tested using an international sample composed of 106 financial intermediaries that implemented FinTech mergers from 2010 to 2018. The methodology employed is the Propensity-Score-Matching (PSM) technique which provides empirical results using a control group of 8,886 financial firms, with a total of 79,974 observations. The results demonstrate how a FinTech merger enhances intermediaries' financial performance. This evidence highlights the strategic value of FinTech fusion in the modern financial system. This study offers important insights for future research on the topic, as it contributes to combining two distinct outfits of literature, FinTech and M&A, into one that has been little addressed in the financial sector.

Investigating Dynamical Complexity and Fractal Characteristics of Bitcoin/US Dollar and Euro/US Dollar Exchange Rates around the COVID-19 Outbreak.

This article investigates the dynamical complexity and fractal characteristics changes of the Bitcoin/US dollar (BTC/USD) and Euro/US dollar (EUR/USD) returns in the period before and after the outbreak of the COVID-19 pandemic. More specifically, we applied the asymmetric multifractal detrended fluctuation analysis (A-MF-DFA) method to investigate the temporal evolution of the asymmetric multifractal spectrum parameters. In addition, we examined the temporal evolution of Fuzzy entropy, non-extensive Tsallis entropy, Shannon entropy, and Fisher information. Our research was motivated to contribute to the comprehension of the pandemic's impact and the possible changes it caused in two currencies that play a key role in the modern financial system. Our results revealed that for the overall trend both before and after the outbreak of the pandemic, the BTC/USD returns exhibited persistent behavior while the EUR/USD returns exhibited anti-persistent behavior. Additionally, after the outbreak of COVID-19, there was an increase in the degree of multifractality, a dominance of large fluctuations, as well as a sharp decrease of the complexity (i.e., increase of the order and information content and decrease of randomness) of both BTC/USD and EUR/USD returns. The World Health Organization (WHO) announcement, in which COVID-19 was declared a global pandemic, appears to have had a significant impact on the sudden change in complexity. Our findings can help both investors and risk managers, as well as policymakers, to formulate a comprehensive response to the occurrence of such external events.

Scarcity of resources as a determining factor of value in input-output models (objectivist concept of capital)

<abstract> <p>Conducting global trade in national currencies greatly increases complexity and fragility of the modern financial system and, therefore, requires creation of new, much more accurate methods of macroeconomic and monetary regulation than those available today. The current practice of macroeconomic regulation relies on the system of national accounts (SNA) based on the Leontief input-output method. Its analytical tools are explained by the possibility of calculating the volume of output of a product and its cost in natural units. Moreover, it offers no explanation to the relationship between the composition of the output and relative prices. This disadvantage significantly complicates practical application of the Leontief method, since primary accounting reports operate with cost rather than physical indicators, forcing the introduction of various kinds of simplifications into the input-output model, which significantly reduces its analytical capabilities. The article presents a physical concept of value, on the basis of which the input-output model is supplemented by the definition of the material law of relative price formation. This addition turns the input-output method from an applied analysis tool into a complete theory of production, and in the future opens up fundamentally new, previously non-existent opportunities for the empirical studies of economic development and creation of highly effective methods of macroeconomic regulation. The price formation model, methodologically explained in the article, is a synthesis of the W. Leontief's concept of economy as a circular flow and P. Sraffa's model of the price mechanism of income distribution. It is basically our own concept of economic reproduction viewed as sharing by the producers of the common material resource of the production system. We claim that our findings regarding single-product industries in W. Leontief's and P. Sraffa's models can be generalized and applied to J. von Neumann's model of the balanced economic growth in multi-product industries.</p> </abstract>

The Sociology of the Financial Crisis: Banks, Mortgage-Backed Securities and the Modern Financial System Book Review: Fligstein N. (2021) The Banks Did It: An Anatomy of the Financial Crisis, Cambridge, MA: Harvard University Press. 315 p

The Sociology of the Financial Crisis: Banks, Mortgage-Backed Securities and the Modern Financial System Book Review: Fligstein N. (2021) The Banks Did It: An Anatomy of the Financial Crisis, Cambridge, MA: Harvard University Press. 315 p

Trade of Debts Resulting from Financial Intermediation: Analysis from Shariah Perspective

The modern financial system encourages people to incur debts to fulfill basic needs as well as spend beyond one’s wants. The core of this system is based on interest, which is the result of the financial intermediation between creditors and borrowers. Regardless of the interest element, which is prohibited in Islam, the very notion of excessive debt creation through financial intermediation and then trading the debt is a very serious matter, as it may lead to global financial crises. The study seeks to address debt trading from a Shariah perspective and address the justifications and attempts brought forward by some institutions to validate debt trading, despite its established prohibition in the Shariah. To achieve the above, the paper employs qualitative research methodology which adopts a textual analysis approach together with a review of the stands of the contemporary Fiqh bodies. The study finds that the excessive creation of debt through financial intermediation and its concentration in financial institutions poses a serious threat to the economy and carries the seeds of financial crises. Following debt creation and concentration, debt trading aggravates the situation and pushes it beyond borders, whereas Sharia through prohibiting debt trading, which is advocated thoroughly in the study, gives Islamic finance genuine immunity against financial crises.

Financial Development and Economic Growth: The Case of Pakistan

The pioneering contributions of Goldsmith (1969), Mckinnon (1973) and Shaw (1973) regarding the relationship between financial development and economic growth has remained an important issue of debate in developing economies. The theoretical argument for linking financial development to growth is that a well-developed financial system performs several critical functions to enhance the efficiency of intermediation by reducing information, transaction, and monitoring costs. A modern financial system promotes investment by identifying and funding good business opportunities, mobilises savings, monitors the performance of managers, enables the trading, hedging, and diversification of risk, and facilitates the exchange of goods and services. These functions result in a more efficient allocation of resources, in a more rapid accumulation of physical and human capital, and in faster technological progress, which in turn feed economic growth [Creane, et al. (2004)].

Does the Inclusive Financial Policy Innovation Promote Rural Revitalization—A Synthetic Control Test of a National Pilot Zone for Inclusive Financial Reform

The establishment of a pilot zone for inclusive financial reform is a major policy innovation in the modern financial system in China and has a lasting and far-reaching significance in accelerating the realization of the overall revitalization of rural areas. This paper takes the first pilot zone for inclusive financial reform (Henan Province) approved by the State Council in 2016 as a quasi natural experiment and uses the synthetic control method based on the “counterfactual” perspective and the intermediary effect model to empirically evaluate the net effect and impact mechanism of inclusive finance pilot policies on the improvement of the comprehensive level of rural revitalization. The results show that the establishment of the pilot zone for inclusive financial reform in Henan Province has significantly improved the comprehensive level of local rural revitalization, and this promotion effect has a trend of continuous acceleration after a one-year lag. In addition, the conclusion still holds after a series of robustness tests. The pilot policy of inclusive finance can positively contribute to rural revitalization development from both the supply and demand sides by enhancing the supply of rural credit and increasing the depth and density of agricultural insurance. Furthermore, the supply and demand sides have a synergistic effect in promoting rural revitalization development, although the effect is not significant at present. The above results not only improve the study of the impact of the pilot policy of inclusive finance on rural revitalization but also provide a strong reference for the formulation and implementation of rural financial reform policies. At the same time, the paper puts forward specific policy suggestions in terms of scientific promotion of the pilot zone, ensuring the supply and demand balance of “credit + insurance” and innovating the system and mechanism of the pilot zone.

Financial market indicators in the context of European integration

Introduction. The application of the European experience of financial market indicators is an actual subject of research for Ukrainian scientists in connection with Ukraine's European integration aspirations. However, the conditions and realities of financial activity in Ukraine are excellent, so the tendency towards blind borrowing needs to be adjusted. The modern financial system of Ukraine is an extremely powerful component of the country's economic body, but there are many questions regarding the increase in the rate of economic instability, especially against the background of Russian military aggression. To further improve the functioning of the financial sphere, the use of financial indicators (opportunities to analyze the system) will become extremely relevant. The purpose of the paper is to investigate European indicators of the financial market that can be used in Ukraine in the conditions of compliance with the course of European integration. Research results. In the paper researched the most popular European interest rate indicators, which are used to determine the cost of long-term lending. The existence of reliable financial indicators is a key condition for the development of the financial market, which makes it possible to influence the mechanisms for determining financial risks. The paper draws attention to the prospects of financial regulation in the conditions of the Eurozone (if Ukraine joins the use of a single common currency) and the possibilities of modern standards of banking regulation. At the same time, there is a need for a strong response to fraud attempts. In particular, in the Federal Republic of Germany, contributors and the indicators declared by them are strictly controlled. Since 2016, EU countries have applied criminal liability for manipulation attempts. Conclusions. Turning to the European experience of using financial indicators is relevant for Ukraine, especially in view of European integration aspirations. However, in order to meet modern requirements, there is a need to update the regulatory and legislative framework. Specific measures for reforms can become a separate object for research.

CREDIT AS A NECESSARY ECONOMIC TOOL OF ECONOMIC RELATIONSHIPS BETWEEN FINANCIAL COMPANIES AND BANKS

The financial crisis and the country's economic problems force enterprises to look for multi-vector tools to solve financial challenges. The need to ensure a smooth production process and the need to conduct active economic activity leads to an increase in the demand for credit resources. The modern financial system shows an increase in the supply of credit products. This paper examines the role of credit in providing enterprises with financial resources. The role of credits in the enterprise activities are investigated. The problems and prospects for the development of credit relations of enterprises in Ukraine are outlined.
 The article outlines the essence of the crediting process as a necessary economic tool of economic relationships between financial companies and banks. The definition of the concept of the bank crediting are considered in the article. Also, the features of bank lending to domestic enterprises were highlighted. The concept of "lending activities" is defined both in general and from the economic point of view. The reasons for the emergence of credit relations are investigated. The place and role of financial leverage analysis are determined in the article. The importance of the development of enterprise lending is proved.

Research on the Impact of US Dollar Hegemony on the International Financial System Based on Big Data Analysis

With the globalization of the world economy, transnational activities in the financial field are also developing rapidly with a surging trend. Financial globalization has not only become the most critical link in the world economic development, but also the most sensitive link. This paper first analyzes the rise of the US dollar hegemony and the relationship between the global financial crisis and the US dollar hegemony, and believes that the US dollar hegemony not only led to the global economic imbalance, but also led to the global financial crisis that started in the United States in 2008. Then, it discusses the current US dollar hegemony and the improvement of the international status of RMB. Finally, it systematically explains China's financial strategy in the post crisis period, mainly including accelerating the internationalization of RMB; We will vigorously develop multi-level capital markets and gradually establish a modern financial system in which securities finance plays an important role.

MANAGEMENT OF BUDGET FLOWS FROM EXCISE TAXATION IN UKRAINE

The article aims to identify possible directions for improving the management of budgetary flows from excise taxation in Ukraine to implementing the state's fiscal and socio-economic tasks through tax revenues. Using the method of analysis of hierarchies, a choice was made of an option for a possible adjustment of excise tax rates on alcoholic products, tobacco products, or the introduction of an excise tax on soft drinks and food products with high sugar content. The method used allowed taking into account the conditions of military aggression on the part of Russia, under which the modern financial system of Ukraine operates. The results obtained by the hierarchy analysis method contribute to balanced decisions in the process of budget flows, and their accounting in the excise taxation system ensures the choice of a reasonable level, tax rates, and the introduction of new types of taxes. The results of assessing the volume of revenues and excise tax based on the results of the implementation of the Consolidated Budget of Ukraine, the State Budget of Ukraine, and the share of excise tax in the budgets of some European countries, in particular, France and Germany, allowed identifying the problems and directions for a balanced and uniform movement of budget revenue streams from excise taxation. The implementation of these steps is associated with the improvement of the management of the movement of budgetary flows from excise taxation in order to eliminate obstacles to the development of the business of manufacturers of excisable goods.

Digital Currencies and Monetary Policy in the New Era

The centuries-old financial structure and the modern financial system are built on physical currencies. After the global financial crisis of 2008-2009 and the COVID-19 pandemic of 2020, along with the introduction of all-new cryptocurrencies and stable coins, even many central banks have voiced an interest in the introduction of digital currencies. Hence, the pros and cons of the new central bank digital currencies (CBDC) are the newest widely discussed topic. This paper focuses on the ways a new instrument, central bank digital currency (CBDC), is expected to improve the modern payment systems, increase the efficacy of monetary policy and ensure financial stability in the new era. The study concludes that although CBDCs might boost monetary policy effectiveness and financial stability, it is vital to reevaluate and thoroughly analyse the geopolitical, geoeconomic, and geostrategic implications and effects of having a CBDC.

Проактивный режим оказания государственных услуг на рынке труда: направления совершенствования

Restrictive measures of the pandemic period accelerated the digitalization process, stimulating a forced transition to an all-encompassing remote format of interaction between economic actors. As a result, the problems and the shortcomings demonstrated the inability of classical technological solutions to become the basis of the digital state. The article proved that the exceptional interaction in the information and communication environment, based on disparate autonomous electronic systems, not only did not satisfy the needs of modern society, but also contributed to the growth of offenses and damage to the economy. The conclusion was drown about the inability of the electronic environment of remote interaction to ensure the effective and high-quality implementation of the proactive regime for the state and municipal services, which has been actively introduced since 2021. Thus, during the pandemic period, the labour market became the most vulnerable, first of all requiring the effective and expeditious mediation role of state structures in order to ensure its sustainability. The study revealed the main problems of the remote format of interaction between entities under the conditions of the modern financial system architecture and the traditional way of organizing information processes. By comparing classical and innovative approaches to the organization of a proactive system for the state and municipal services the authors proposed the directions for its improvement taking into account the interests of the state and citizens.

An innovative MS-VAR model with integrated financial knowledge for measuring the impact of stock market bubbles on financial security

In the modern financial system, division of labor and close cooperation between different departments are determinants of risk contagion. The risk resulting from the volatility of the stock market can easily spread to other industries and departments, leading to systemic financial and economic crises. Previous research has mostly examined financial security from the lens of macro currency security, and the security of the banking system, but has ignored its micro-basic problems, such as the bounded rationality of investors due to the lack of financial knowledge. The study analyzes the behavior of micro-investors, price fluctuations in the meso‑stock market, and the macro-financial security in a unified framework. First, we use the comprehensive analysis method to superimpose some basic values and investor behavior characteristics, such as the stock price fluctuation index, and then construct the ultimate stock price bubble index; second, the principal component method is used to establish a financial security index that is in line with basic economic reality and consistent with previous studies; the innovative MS-VAR model is used to analyze whether the stock price bubble will affect financial security, and the rhythm and correlation of the two parties under different regimes are summarized. The results show that the stock market bubble level is the Granger cause of financial security, the stock market bubble index is the leading indicator of the financial security index, and the relevant parameters of the model are significant and have obvious economic significance. This study has important implications for scientific market regulation.

Regulation of Cyber Risk in the Banking System: A Canadian Case Study

Abstract Cyber risk is one of the greatest threats facing any modern financial system; a result of increasing dependence on technology and the appeal of troves of personal data to well-equipped hackers. This article examines the governance of cyber risk in the Canadian banking system in the context of the Covid-19 crisis, which has led to a surge in cyber-attacks. It argues that the existing Canadian regime, which draws heavily on the Basel operational risk framework, is unfit to handle the unique challenges posed by cyber risk. Cyber incidents are unlike traditional operational disruptions in both their dynamism and impact, and are not adequately captured by backward-looking proxies, such as historical losses. There is also a mismatch between the traditional risk-based supervision, which relies on annual risk rating of banks, and the quickly changing cyber profile of regulated entities. Furthermore, the bilateral and institution-specific nature of such supervision leaves out the crucial systemic perspective on cyber risk. This article calls for the current quantitative paradigm, which underlies capital adequacy regulation, to be complemented with a resilience-centric approach aimed at better accommodating and learning from unpredictable cyber incidents. This shift requires revisiting traditional supervisory practices, such as extensive reliance on centralized decision-making and planning—which may prove ineffective in the face of a firm-wide cyber incident—and a dynamic approach that keeps regulation in line with emergent knowledge. The article outlines a number of strategies which can help banks and regulators navigate and adapt to the ever-changing cyber landscape.

Research on the Development Status and Regulatory Countermeasures of Financial Technology in China

The rapid development of financial technology has brought about a significant impact on China's financial services. The development of innovative technologies based on big data, cloud computing, Internet of Things, artificial intelligence and other technologies has played a positive role in improving the overall efficiency of China's modern financial system, but it is also accompanied by some risks. How to prevent the risk of financial technology development, improve financial technology innovation, and develop the real economy is a serious problem facing China's financial regulatory authorities. This paper analyzes the development status and trends of financial technology and the risks faced by the development of financial technology, and puts forward corresponding regulatory policies.

Civilization split is back (On the book by V. L. Inozemtsev “Economy without dogmas: How the U.S. is creating a new economic order”)

The article discusses the key ideas of the new book by the respected Russian scholar Vladislav Inozemtsev “Economy without dogmas: How the United States creates a new economic order”. In this book, the author reveals the most important features of the modern financial system, which have become especially prominent during the COVID-19 pandemic. The overriding message of this book is the idea that in the coronavirus era the leading developed economies have finally moved into a new financial reality. According to Inozemtsev, its main characteristics include the following: surging money supply, public debt growth, and negative interest rates. Inozemtsev considers them to be indicators of profound changes in the structure of the Western economies which mark the inconsistency of statements about the imminent end of the Western hegemony in the global economy. We think that the most interesting point in the “Economy without dogmas” is the author’s attempt to link changes in the financial sector with technological and economic shifts. The debatable nature and abundance of original ideas contained in this book open up excellent opportunities for further discussion of urgent socio-economic issues.