Financial liberalization is a double-edged sword, which can give full play to the regulatory power of the market under certain conditions. However, excessive development or wrong path selection will lead to financial chaos and even the occurrence of financial crisis. In recent decades, many developing countries, led by the United States, have embarked on a wave of financial liberalization that has tied the global economy to U.S. interests. The United States ushered in nearly 20 years of prosperity in the process of financial liberalization, but its economy was finally plunged into crisis due to the runaway financial liberalization.
For almost 20 years, financial liberalization has been a wonderful phrase for many countries. The theory of financial deepening put forward by McKinnon and shaw in 1973 laid the theoretical foundation of financial liberalization. McKinnon and shaw's financial deepening theory mainly focus on the question of interest rate control of financial repression, with the continuous development of the theory of financial liberalization, expanding the content of the financial liberalisation, including interest rate liberalization, to reduce the financial market admittance standard, relax the separated management of financial institutions, encourage financial product innovation, the currency freely convertible, the floating exchange rate management, open the domestic financial market, etc. In short, the core of financial liberalization is to reduce government intervention in the financial market, loosen the restrictions on financial institutions and the financial market, so that financial prices such as interest rate reflect the relationship between capital supply and demand, and pursue the optimization of capital allocation.
The collapse of the bretton woods system in 1973, when the dollar was no longer tied to gold reserves and a floating exchange rate, marked the beginning of global financial liberalisation. In the 1980s, the United States relaxed restrictions on the financial sector by enacting and amending a series of laws. Such as the United States in 1980 congress passed the lifting depository institutions controls and monetary management act, namely the abolition of the "regulation Q", in 1982 passed the act of grace - st. germain savings institutions, through the fair competition banking act in 1987, passed in 1989, the financial institution reform, Renaissance and implementation plan, completely abolished after the great depression of the glass - steger, act of the basic principles, gradually formed in order to realize the mixed management, encourage financial innovation and financial regulation, relaxing the financial liberalization reform with the characteristics of international capital free flow pattern. Since the 1970s, under the strong impetus of the United States and other developed countries, the financial liberalization reform that abandons the Keynesian economic policies and advocates the neo-liberal policies has become a wave sweeping the world. Attempts to liberalise finance in many developing countries have mostly failed. However, after more than 20 years of financial liberalization, the United States, which is billed as the "most liberal", suffered the "once-in-a-century" subprime