SEARCH

SEARCH BY CITATION

Abstract

High oil prices and impressive economic performance in emerging markets have led to the accumulation of massive financial assets. These nations have created sovereign wealth funds (SWFs) to manage their growing assets. SWFs have provided significant liquidity to American and European financial institutions. The rise of SWFs in number and size has raised concern about their objectives and strategies. This study examines the role these state-owned funds play in the global markets and the efforts to regulate their activities. I argue that capital exporting and importing nations share common interests and reciprocal responsibility in ensuring global financial prosperity.

Policy Implications

  • Sovereign wealth funds are currently important players in the international financial system and are projected to become even more influential in the future.
  • Sovereign wealth funds investments are driven more by commercial interests and less by political objectives.
  • The interests of capital exporting and capital importing nations are not mutually exclusive. Rather, both seek economic prosperity and political stability.
  • Too much regulation of sovereign wealth funds’ activities is likely to weaken cross-border trade and investment.
  • Sovereign wealth funds should gain the confidence of host countries by accepting a high level of transparency.