Political Economy of Financial Systems

The political economy of financial systems examines how power, institutions and ideas shape the organisation, regulation and evolution of financial markets. At its core lies the dynamic interaction between state actors, central banks, international organisations and private financial interests. Political institutions establish regulatory frameworks that mediate risks, allocate credit and influence macroeconomic stability. Central banks deploy monetary tools and communications strategies to steer markets, manage expectations and respond to crises, while often navigating tensions between price stability mandates and broader political objectives. International networks of regulators and technocrats construct transnational governance regimes that diffuse best-practice standards and create arenas for coalition-building. Public opinion, media coverage and political scandals further drive the demand for reform and affect the stringency of regulation. Recent global challenges – from climate change and green finance to digital-asset expansion and geopolitical conflict – have intensified debate over the role of financial systems in delivering public goods and preserving systemic stability. This field integrates insights from economics, political science and sociology to explain how ideas become embedded in operational tools, how institutional path dependencies limit reform, and how coalitions form to shape the future contours of global finance.

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Political Economy of Financial Systems publication trend

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Technical terms

Fiscal space: The capacity of a sovereign government to provide resources for public spending and investment without jeopardising fiscal sustainability or triggering adverse market reactions.

Ideational robustness: The resilience and adaptability of policy ideas within institutional settings, reflecting the ability of new concepts to gain traction amid entrenched frameworks.

Financial transgovernmental network: A formal coalition of central banks, regulators and supervisory bodies from multiple jurisdictions that coordinates policy standards and shares best practices across borders.

Financial sanctions: The use of monetary restrictions—such as asset freezes, exclusion from payment systems or trade embargoes—by state actors or international bodies to achieve geopolitical objectives.

References

1. How “baked in” ideas hinder ideational robustness: the International Monetary Fund and “fiscal space”. Policy and Society (2024).
2. Banklash: How Media Coverage of Bank Scandals Moves Mass Preferences on Financial Regulation. American Journal of Political Science (2023).
3. Financial technocrats as competitive regime creators: The founding and design of the Network for Greening the Financial System. Regulation & Governance (2024).