Question

“Offshore financial centers operate with little oversight, few regulations, and often fewer taxes. Many governments complain that these centers sometimes facilitate money laundering”. Discuss the benefits and disadvantages of these offshore financial centers. According to you should offshore financial centers be allowed to operate as freely as they do now or should these be regulated? Explain

Answer 1

There are some benefits and disadvantages as well, due to these offshore financial centers. The first benefit is the contribution in economic activities, helping economy to expand and create new jobs. These companies also create jobs for their own operations directly in different market. So, direct and indirect contributions to reduce unemployment, takes place. The second benefit is the expansion of capital market and making resources to be channelized from lenders to borrowers. It makes the market for loanable funds to grow as well. The third benefit is the opportunity for the people to create wealth via different modes of investments, provided by these centers. The first disadvantage is the scope of money laundering and black money coming to the market and become legal. The second disadvantage is the lack of control upon the functioning of the these companies as they are governed by the different laws of the country where they are situated. The third disadvantage is the lower benefits to the government where these companies are operating, by circumventing the local laws.

These centers should be allowed to operate, but with some regulations. These regulations should focus to make the centers or company to make important disclosures so that local laws to prevent money laundering, investments by anti-social elements or black money is implemented. Besides, laws should be enforced to regulate the profit earned and taxes to be paid in some extent to the government. But, it should be balanced so that these centers continue operations and economy gain positive benefits from it.