The Promotion of Transfer-of-Funds Liberalization Across International Economic Law

Abstract

This paper examines an important aspect of the ongoing hybridization of contemporary international monetary law. The formerly clear-cut body of international law on capital and exchange controls, once exclusively enshrined in the Articles of Agreement of the International Monetary Fund, has been replaced by a multi-faceted framework of rules emerging from all three traditional pillars of international economic law: international trade, investments, and money. As elaborated in this paper, the multilateral rules on capital and exchange controls as enshrined in the Fund’s Articles have been increasingly marginalized in that context. This phenomenon can be explained as follows:First, the dense network of bilateral investment treaties is strongly promoting the liberalization of international transfers of funds and states wishing to attract foreign capital have little choice but to agree to far-reaching transfer-of-funds provisions. Second, the WTO framework on trade in services in general, and trade in financial services in particular, constitutes a more recent, yet very powerful, driving force towards increased transfer-of-funds liberalization. Third, the two OECD codes on capital liberalization have also played a major role in promoting international capital movements to an extent that goes well beyond what would be required under the Fund’s Articles. Fourth, at a time of ever-stronger financial integration, states are facing various economic incentives to liberalize their capital accounts independent of any legal obligation to do so. In the light of these factors, the IMF rules on capital controls in IMF Article VI:3 give a false impression of regulatory freedom that most IMF members do no longer enjoy. As argued in this paper, the contemporary legal framework for international transfers of funds is not only an outstanding illustration of the ongoing hybridization of international monetary law, but also of the extent to which the formal separation between the three traditional pillars of international economic law has become artificial.Presented at the SIEL 2010 Conference in Barcelona.