The (Mis)Alignment of the Trade and Monetary Legal Orders

Abstract

Following the catastrophe of the Great Depression and World War II, two separate, but interrelated international legal orders arose, one for international monetary matters, and the other for international trade. Since every transaction in the cross-border sale of goods, outside of barter, involves both a movement of goods and a movement of money, these two orders intersect. This interface poses challenges for the coordination and settlement of two distinct areas of international and national law and policy, governed by two different international organizations that work with different government departments, which departments, in turn, are staffed by professionals with different disciplinary backgrounds and policy priorities and who are pressed to be responsive to different economic constituencies. The book chapter assesses the implications of the coordination and alignment of these two legal orders for three important issues confronting the world economy today. First we address the close alignment of the two legal orders on the issue of balance of payments, where trade restrictions are introduced on balance of payments grounds. We next assess their relative misalignment as regards exchange rates in which there is considerable contestation over potential government manipulation of exchange rates that affect trade competitiveness, posing the threat of “currency wars.” We then address their potential conflict regarding capital controls and the liberalization of financial services under the GATS, its Annex on Financial Services, and a web of plurilateral and bilateral preferential trade agreements. We conclude regarding the reasons for and implications of variation in the alignment of the monetary and trade legal orders in addressing these three critical regulatory issues.