support the level of price stability necessary for progressive development of the
economy,
including prices for financial products and services, the demand and supply
for which is counterbalanced by the financial market. Although fiscal and monetary
policy are often interconnected, they are considered to be separate instruments of
managing the national economy by the government and are usually implemented by
different public authorities.
Thus, the National Bank of Ukraine, which is the main figure in monetary policy,
also acts as one of the three regulators of the state of financial services markets, in
particular, influences and controls the functional aspects of the banking services
market. In turn, the State Fiscal Service ensures supervision of tax discipline as
professional participants in the banking market and financial intermediaries in the non-
bank financial services market.
In the environment marked by rapid formation of globalized financial markets and
consequent evolution of domestic financial markets in the countries seeking financial
convergence, financial capital has become more mobile, target guidelines for
governments’ financial policies in most countries of the world are shifted from the
issue of selecting between monetary and fiscal policies to the problem of creating
favourable conditions for attracting sources of financing the capital in the world market
and increasing the competitiveness of national economies. Under such circumstances
the local financial market becomes an instrument of organized mediation of capital
flows. Under the conditions of globalization, the ability of both governments and
central country banks to conduct monetary and fiscal policy, that would be separate
from financial services markets, has narrowed considerably. For example, expanding
the boundaries of information transparency leads to instantaneous transmission of
information about an expected growth of public debt to the financial markets,
which
inevitably arouses the participants’ reaction to such financial expectations. One of the
manifestations of this process is consequent rising of market interest rates due to
increased inflation expectations. Under these circumstances, the financial market and
the country’s financial system in general become less attractive to foreign investors
and they casually become net exporters of capital,
thus undermining the basis for the
country’s long-term economic growth.
Creating and implementing a balanced and consistent fiscal policy enables
attracting mobile capital to the country through professional financial intermediation.
At present, international capital mobility has reached the stage when expansionary
fiscal policy is no longer able to create sufficient incentives for economic growth; what
is more, additional government demand for financial assets is levelled out by capital
flight from the country and formation of a shadow sector for trading financial products
and services.
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