Towards a global financial architecture: capital mobility and risk management issues

Abstract

In recent years, we have witnessed a significant loss of national welfare from economic crises resulting from the weakness of the global financial system. After analyzing the root causes of this experience, we focus on two major fault lines that have characterized most of these occurrences: First, we review the arguments in favor of and against the open capital markets paradigm. We identify factors that must be taken into account for a successful integration of the national economies in the global capital market. Second, we discuss the lack of attention to innovations in risk management practices, which deal with the new sources of risk inherent in an increasingly integrated and complex global economy. Finally, we suggest some desirable democratic features and the importance of recognizing national architectures in the design of a new global financial architecture.