International Financial Reform Research Articles

Globalization and its Effect on the National Economy: The Albanian Case

Globalization is a widely discussed phenomenon that involves the free flow of goods, services, capital, and people across the world. It is mainly focused on economic and cultural aspects, among others. Globalization can be considered as a trend towards increasing of the interdependence and integration among the countries and regions of the globe. Globalization affects us all and leads a radical change in the human’s lives all over the planet, in the relations between them as well as in culture and other aspects related to institutions. So globalization increases incomes but simultaneously increases social inequalities, leaving some countries and groups of people behind. To put it simply, globalization can rapidly enrich a small group of capable individuals while impoverishing the larger population. This ultimately leads to a decline in living standards across the world. Globalization has both positive and negative sides, globalization also produces winners and losers, both between countries and within them, so there are losses and the lost, but the supporters of globalization do not accept this fact. In conditions when the economies are converging and that this phenomenon is generally acceptable, national governments should look forward to pay attention to the growth of domestic capital the pursuit of international financial reforms with the aim of making it possible to find solutions to help losses and the lost. National governments should have social protection policies on the top of their agenda as well as programs that will help as much as possible in the correcting of the unequal distribution, to help different groups in need. Labor migration is a negative phenomenon that caused by the globalization and damages the economy of small countries in transition as people capable of working move to developed countries for a better life than what they leave in their country of origin. The main indicators of the globalization of the national economy are producing for world markets, being part of the global financial markets, as well as foreign direct investments. Globalization is inevitable, under these conditions the duty of the national governments is to face of the pressure that leads to the subordination of the local economy to the global one. Globalization facilitates the connection of different parts of the world, reducing borders and allowing national economies to cater to global tastes. The decreased transportation costs also contribute to the intermingling of the global and local aspects, ultimately leading to the unification of regions. About globalism, there are currents for and against, while the opponents of globalism as well as those who call globalization the cause of poverty and inequality have not drawn up any alternative model for economic growth and development throughout the globe. Small countries like Albania require large international corporations or companies to invest in them to achieve comprehensive economic development, reduce unemployment, and increase well-being. Financial institutions like the World Bank and the International Monetary Fund also play a crucial role in this process. Received: 25 December 2023 / Accepted: 25 February 2024 / Published: 23 April 2024

Climate leadership now: Climate finance & political will

Climate leadership now: Climate finance & political will Richard Beardsworth, Professor of International Relations and Head of School from POLIS, University of Leeds, looks at climate finance and political will among national governments and international institutions, aiming to break the stand-off between developed and developing countries. Overall, this evaluation of climate finance provides the key to breaking the deadlock between developed and developing countries by aligning the strategies of mitigation with adaptation and loss and damage. Aiming to understand climate action and ambition, Professor Beardsworth analyses the Conference of the Parties (COPs) and their role in mitigation with development and adaptation. He explains that distrust between the two sets of countries is embedded in the international politics of climate change. In this analysis of climate leadership now, he looks to the COP27 decision text and the G20 Bali joint declaration, which emphasise the need for ‘major international financial reform to support developing countries'. The language of both agreements is informed in part by the Bridgetown Initiative, which Professor Beardsworth explores in extensive detail. As we are in an age of polycrises and deep transformation, he argues, we must change how we respond to the plurality of interdependent and mutually reinforcing crises (climate, health, energy, food, inequality, poverty), our energy systems, our current economic and financial models, as well as our present ways of governing.

Green finance and the economic threats during COVID-19 pandemic

Our paper aims at describing the links between green finance and sustainable development in the light of the environmental threats and natural disasters represented by the recent coronavirus pandemic caused by the COVID-19 virus. The recent situation heavily impacted on the financial and banking system and transformed the way it has functioned before. Moreover, it demonstrated that the banking system is more vulnerable than it should be. The banking sector has shown little capacity to absorb unexpected risks, owing to far-reaching international financial reforms. There are indications that some banks are on the verge of collapse, while some non-bank financial institutions and markets need immediate support. A decade after the financial crisis, the world is still struggling with the problems posed by the events of 2007–2009. Moreover, decisions taken during the crisis increased the risk that pandemic financial stress would develop into a banking crisis over time. Our paper shows that now there is a need for the creation of healthy environment marked by the carbon-free and environmentally-friendly approaches, and the green finance might help us to achieve that goal. Our results make it clear that by promoting such instruments as green bonds, green loans and green mortgages stakeholders and policy-makers might help to create a more sustainable future for the people, their natural environment, and the economy as a whole. © 2021. All Rights Reserved.

Transformation of the Global Financial System in the First Two Decades of the Twenty-first Century

The article analyzes the changes that have occurred in the global financial system in the XXI century. Moreover, the study covers the global financial system in its integrity as a combination of different financial markets and international financial institutions. Based on the analysis of statistical data, it is shown that the global economic and financial crisis of 2007-2009 led to a reduction in international capital flows, a change in their structure (towards an increase in the share of foreign direct investment) and a decrease in cross-border financial activity. In the post-crisis period, government debt and equity markets developed relatively more dynamically, while banking activity was restrained, including as a result of intersectoral arbitrage caused by international financial system reforms. The process of reforming the global financial system has reduced risks in certain segments of the global financial market (banking services markets, over-the-counter derivatives), but retained relatively less regulated segments that may be subject to risks of financial shocks. Changes in the global financial architecture have led to the formal involvement of emerging markets in the process of reforming the global financial system (through the Group of 20) and to some strengthening of the supranational component of regulation. However, in general, the interests of countries with emerging markets both in the reform processes and in the construction of the global financial architecture are not fully taken into account.

The China-Italy Comprehensive Strategic Partnership: Overview and Pathways to Progress

2020, the year that the world was engulfed by the Covid-19 pandemic, was also the 50th anniversary of diplomatic relations between China and Italy. The China-Italy comprehensive strategic partnership plays an important role in deepening China-EU cooperation, advancing the Belt and Road Initiative, and building a community with a shared future for humanity. China-Italy relations should be studied within the analytical framework of strategic partnership which has gained traction in China’s foreign policy narrative. Beijing’s pursuit of strategic partnerships aims at forging stable and enduring relations that are driven by common interests in a world of proliferating challenges and geopolitical uncertainties. While making steady progress, the partnership is also facing multi-dimensional challenges. China and Italy should strengthen strategic dialogue to build mutual trust and constantly improve their institutionalized cooperation. Economically, they should work out broader areas for collaboration and better manage their competition to achieve win-win results. At the level of people-to-people exchange, mutual understanding and trust should be enhanced to eliminate misconception and prejudice. At the regional level, the China-EU-Italy trilateral relationship should be consolidated to shield bilateral cooperation from the volatility of China-EU relations. In the global arena, China and Italy should also step up efforts to catalyze international financial reforms and address global challenges such as climate change, economic governance, and global public health emergencies by improving policy coordination and aligning global strategies.

Political Opportunities and China’s Proposing Behavior in the G20

In global economic governance, political consensus reached by the G20 members plays an important role of defining governance ideas and governance directions as well as steering and boosting collective actions. Political opportunities are essential for the G20 members’ successful efforts to place their preferences into the political consensus of G20. This paper analyzes how the G20 members place their preferences into the political consensus of G20 through the lens of political opportunity, and provides a relatively detailed demonstration on China’s practice of proposing policy initiatives and placing its preferences into the political consensus of G20 by examining the cases of International Monetary Fund (IMF) quota reform and international financial regulation reform.

Financial structure and the development of domestic bond markets in emerging economies

AbstractIn the period from the 1990s emerging market financial crises until the North Atlantic financial crisis of 2008, the development of domestic bond markets in developing economies was a prominent agenda item in international financial reform circles. The crises of the 1990s drew attention to the vulnerabilities generated by frequently occurring double mismatches of currency denominations and maturities in the borrowing of emerging economies. This led to a series of reform efforts targeted at both increasing liquidity and the range of borrowers in domestic bond markets. In the aggregate, these efforts were successful: For emerging market economies as a whole, domestic debt now exceeds international debt. Moreover, domestic corporate bond markets have emerged in many countries, often for the first time. However, the nature of market development has been far from uniform, and often has not been in line with government aims. In this paper, we examine the interplay of government and business actors in market development. Drawing on 155 interviews with policy and market actors as well as secondary data, we show that the main explanation of variation in market development lies in the pre-existing structure of financial markets, conceptualized as a heterogeneous set of interest/influence constellations.

Structural reforms and growth in developing countries

This paper investigates the effects of structural reforms on real per capita GDP in the short and long-run by employing Pooled Mean Group approach. I find that during the period 1973–2006, there is a positive long-run relationship between international trade reform, financial (capital account, and domestic finance) reforms and real per capita GDP. My results also indicate that in the short-run, financially more open economies suffer more from international trade and domestic financial reforms. More importantly, the adverse effects of reforms in the short-run can be mitigated by improving property rights and contract enforcement.

Behavioral Economics, Regulatory Games and Errors, and Why the Next Global Financial Crisis Might Be Inevitable (?)

The major argument of this working paper is that the findings and insights from the behavioral, neuroscience and wicked problem literatures, and their implications for past, current and future regulatory errors, will play an important role in determining whether, why, how and when the next global financial crisis will take place. The paper therefore brings a behavioral economics and regulatory error lens to current, contested and unresolved debates on the drivers and causes of the last global financial crisis, and the anticipated causes of the next crisis -- which based on the extensive literature and numerous blogs reviewed by the author has nearly as many predicted causes as the number of authors who have offered their perspectives on this topic. The working paper describes a number of major findings and cross-cutting themes, which require greater research and policy analysis from a behavioral regulatory perspective. These themes include: (i) The much greater diversity, complexity and “wicked” characteristics of financial markets, products, instruments, institutions, and business relationships compared with most other regulated markets and industries; (ii) How and why this diversity, complexity and “wickedness” are magnified during a crisis, leading to even greater risk, frequency and consequences of regulatory error. (iii) The potential for reducing the risk and frequency of regulatory errors when governments and external stakeholders become more aware of the many sources and reasons for regulatory error, and focus greater attention on the benefits that many companies receive from well designed and effective regulatory authorities and regimes. (iv) The differences between micro- and mega-regulatory errors and their contributions to explaining why national and international financial regulatory reform efforts after the last crisis are deemed by many to be incomplete and inadequate for preventing the next crisis. (v) The regulatory errors that result from the misdirected efforts of governments and their regulatory authorities to sustain and protect their reputations for competence and serving the public interest. (vi) And the role and contributions of the intentional strategies of “strategic complexity” of global banks, other financial intermediaries, and other international corporations to transforming national financial problems into global financial crises. The major conclusion of the working paper is that the micro-and mega-regulatory errors that impede financial market regulatory reform and are expected to contribute to the next global financial crisis would be best addressed and minimized through the establishment and operation of more inclusive, polycentric, responsive and shared accountability financial regulatory regimes at the sub-national, national, multi-national and global scales -- based on what is called the “sustainable governance” model and approach to regulatory compliance, performance and success.

A Tale of Two Crises: The Search for the Enduring Reforms of the International Financial System

The Asian economic crisis of 1997 spawned a vast analytical literature and a reconsideration of the international financial architecture. This article seeks a broader perspective on these issues by comparing the causes of the debt crisis of 1982 with those of the Asian crisis. These two crises are the most significant of the last fifty years. Their joint analysis reveals seven enduring lessons of international financial reform that need to be incorporated in any revisions to the international financial system. The debt crisis that erupted in August 1982 was the most damaging and far reaching financial crisis of the late 20th century. It spawned a voluminous literature. Of late we have had crises in Mexico in 1994, East Asia in 1997, Russia in 1998 and Brazil in early 1999. These more recent crises have served to supersede the debt crisis in the public imagination to the extent that that we hear nonsense such as the repeated descriptions of the Asian crisis as “the most severe crisis of the last fifty years”. This article seeks to re-examine the debt crisis in light of our more recent experiences of financial crises. “Those who cannot remember the past are condemned to repeat it.” and mistakes in the finance of developing countries cost the lives of thousands and sacrifice the futures of millions. The methodology of this article is to compare the causes of, and lessons from, the debt crisis with the causes of, and lessons from, the Asian crisis with reference, as appropriate, to the Mexican, Russian and Brazilian experiences. There are certain similarities among each of these four financial crises of the 1990s. The debt crisis of the 1980s was in many ways quite a different type of crisis. The goal of this article is to identify the lessons that have held good throughout the last thirty years of international financial history and across these two different types of crisis. These, it is postulated, will be the lessons most likely to be of relevance in these early years of the next century as we seek to improve the architecture of the international financial system.

From enforcement to prevention: international cooperation and financial benchmark reform

The London Interbank Offered Rate and forex scandals have shaken public trust in the global financial system. Despite the global nature of the scandals, the role of international cooperation in preventing financial benchmark manipulation has been surprisingly overlooked. Benchmark reform has tended to focus on structural changes to benchmark administration and regulation, with a particular emphasis on benchmark quality, methodology and governance. Where international cooperation has occurred, it has tended to operate ex post, in facilitating cross-border investigations after crises have already been revealed. Where ex ante cooperation has occurred, it has taken the form of high-level standard-setting. It is clear that further cooperation is needed to prevent misconduct rather than to merely punish it. This article addresses the question of international cooperation in the financial benchmark context and concludes that cooperative tools such as ad hoc discussions, supervisory colleges, equivalence measures and regulatory networks have the potential to bridge the preventative gap in this regard.

USA IN THE EMERGING SYSTEM OF GLOBAL FINANCIAL REGULATION

In the globalizing world of fi nancial and economic interdependence, a polycentric, multi-level, and hierarchical system of global financial regulation is emerging. The article highlights two vectors of recent development in international fi nancial regulation: the rise of cooperation through the mechanisms of the Group of Twenty (G-20) on the one hand, and the efforts to maintain the US leading role in global fi nance, on the other hand. In the circumstances of the global fi nancial crisis of 2008, the G-20 countries initiated an international reform of fi nancial regulation. According to G-20 decisions, international standardsetting organizations developed transnational regulatory regimes in the fi elds of banking, derivatives and bankruptcy resolution, and the states now implement these regimes in their jurisdictions. The so-called “soft law system”, which is not legally binding, allows the states to sustain national sovereignty in their fi nancial policy. The United States play a leading role in the international fi nancial reform, as well as in the shaping of the global fi nancial regulation system. The American regulators push for extraterritorial application of the US norms and take other unilateral actions on the international arena. The article also touches upon legitimacy problems of the emerging system of global fi nancial regulation. The most important constrains are the excessive infl uence of the fi nancial industry (“regulatory capture”), the weakness of civil society participation, and also the fact that for the rest of the world the American norms lack legitimacy, as they are adopted by regulators assigned by offi cials elected by population of a foreign territory.

Central Bank Currency Swaps and Their Implications to the International Financial Reform

Since the outbreak of the global financial crisis, a series of currency swap arrangements among central banks have been reached, and many short-term ad hoc mechanisms have been later transformed into permanent institutions, with the decentralized role of the USD and increasing significance of other currencies. It is important to note, however, that currency swaps by Western countries are generally not intended to reform but to maintain stability of the U.S.-dominated international financial system and the USD hegemony. The comprehensive currency swap arrangements made among six major developed economies since the financial crisis exemplify their resistance to the international financial reform. Meanwhile, developing countries have also laid out their own blueprints, highlighted by China’s currency swap arrangements with 33 foreign central banks and the accelerating RMB internationalization. The currency swaps promoted by the People’s Bank of China (PBOC) between the RMB and other currencies would inject supplementary liquidity to a turbulent market and offset impact from the selective currency swaps of the U.S. Federal Reserve, thus proving beneficial to developing countries. While such currency swaps are far from replacing the IMF’s role in stabilizing the global financial market, they are posing both challenges and new opportunities to the reform of the international financial system.

Progress and Challenges for International Financial Reform

Although the U.S. economy continues to gain strength, global growth is weak; and several important economies face deflationary risks. Financial markets have become global, but regulation is conducted at the national level. It is essential to have global cooperation on financial regulation if future global financial crises are to be avoided. The United States has led the effort to achieve this. This paper provides an overview of the efforts under way and discusses the main objectives of future international financial regulation.

Совет по финансовой стабильности: на пути к институционализации?

The article deals with the evolution of the Financial Stability Board (FSB) into a full-scale and sound authority of international banking regulation. Founded in 1999 as the Financial Stability Forum, the FSB has become an international body in 2009 overseeing the international financial regulation reform, also known as Basel III. Nonetheless, FSB’s responsibilities and competence are still limited to the annual determination of global systemically important banks (G-SIBs) and the development of the reform strategies for G-20 consideration. FSB has already proved to be a credible coordinator of Basel III implementation. Its initiatives on effective resolution strategies and total loss absorbing capacity for G-SIBs not only notably contributed to the set of regulatory tools and techniques aimed at minimization of systemic risks and enhancement of stress resilience of the banking industry but also designed approaches to mitigate the threat of “too big to fail” banks for the national economy at large. However, new regulatory paradigm requires principally new metrics to measure macro- and micro-level risks. Yet synchronization of the regulatory reform at the national and supranational levels stands beyond the accepted scope of synergetic effect of the reform. This means that FSB’s organizational status makes it less capable to be in line with financial sector dynamics, its growing interconnectedness and complicating infrastructure, and rapidly changing economic environment. Under these circumstances regulatory transformation lacks mechanism that would overcome fallouts of regulatory arbitrage as well as risks of shadow banking. Reform inconsistency may spur perilous effect of regulatory “glocalization” in that national regulatory regimes may stop abiding by most of the Basel III principles and standards, which may ultimately ruin sense, logic, and continuum of the reform. Shortage of factors that calibrate consistency and continuity of regulatory reform diminishes FSB’s involvement into it. FSB’s efforts in promoting basics of reform synchronization between national and international realms are weakened by fragmentation of the financial markets as well as by different adaptive abilities of financial institutions to the new regulatory order. On the other side, single-principles-centered quantitative and qualitative platforms of banking regulation are among the imminent traits of the global financial sector. The mentioned conflicts put on the agenda the inevitability of a higher international status of the FSB as a powerhouse of a single regulatory concept aiming at global financial stability. Driven by that mission FSB is urged to become an independent international institute to administer closer collaboration among national regulators as a regulatory information hub. This will decisively complement its kit of existing instruments in attaining more balanced reform implementation and will ensure synergetic effect when applying regulatory actions into risk identification and risk management as well as resolution and recovery of G-SIBs. Acknowledgements. The research was supported by a grant of the RFH, project № 15-02-00669/15 “Development of the conceptual framework for cross-border capital flow amid escalation of geopolitical risks for the Russian Federation”.

The Legitimacy of the G20 - A Critique Under International Law

The G20 has become the preeminent international economic and financial policy making body in the aftermath of the global financial crisis of 2007-2009. In the early phase of the financial crisis, the G20 made considerable progress with its measures to stabilize the global economy (London Summit of 2009). However, its subsequent initiatives have not kept pace with the challenges of a weakening global economy and the need for effective international financial regulatory reforms. This lack of success can be attributed in part to the G20’s unaccountable institutional structure that lacks legitimacy under international law. The G20's current institutional structure fails to respect the principle of a democratic and equitable international order as set forth in various United Nations instruments. To overcome these institutional shortcomings, this article considers a number of proposals to reform the G20 and to enhance international economic governance. This would lead to a redefined and broader mandate for the G20, allowing non-G20 countries to participate in a meaningful way in G20 policy formulation. It also suggests that the G20 integrate its operations more durably to existing international economic organisations, such as the UN ECOSOC, IMF, World Bank and WTO, in order to build a more effective and complementary global economic governance structure. By doing so, the G20 would enhance its effectiveness and credibility in addressing the important challenges facing the global economy.

Enforcing International Financial Regulatory Reforms

International finance law keeps the tradition of ‘soft law’ standards even after the 2008 financial crisis. This status quo derives from concerns over sovereignty and regulatory uncertainty. Although soft law has merits in pragmatic rule making and flexible rule implementation, soft law is not an efficient design for international financial regulation. The soft-law tradition led to difficulties in implementing G20-led international financial regulatory reforms against the 2008 financial crisis. Inconsistent implementation and potential regulatory arbitrage across borders have swamped all sectors of international financial regulatory reforms. The implementation problem tends to induce states to race to the bottom, making international financial regulatory reforms in vain, and even laying the ground for the next financial crisis. This article calls for keeping the right momentum of hardening international finance law along possible dimensions of obligation, stringency, delegation, and enforcement. This article proposes that a stronger institution of the Financial Stability Board will help facilitate the reforms, and a credible dispute settlement mechanism is a necessary design for enforcement.

International Financial Reforms: Capital Standards, Resolution Regimes and Supervisory Colleges, and their Effect on Emerging Markets

This paper focuses on the relevance to emerging economies of three major financial reforms following the global financial crisis of 2007–2009: (1) the improved capital requirements intended to reduce the risk of bank failure (“Basel III”), (2) the improved recovery and resolution regimes for global banks, and (3) the development of supervisory colleges of cross-border financial institutions to improve supervisory cooperation and convergence. The paper also addresses the implications of these regulatory reforms for Asian emerging markets. JEL Classification: G2, G28, O16 ADBI Working Paper 402 Alford

International Financial Reform and Africa: What is to Be Done?

This paper discusses the likely implications of the financial crisis on Africa and considers what Africa can do to position itself to extract some benefit from the negotiations on international financial governance reform.

International financial standards and the application of Basel III in emerging and frontier markets

There is no doubt that international financial standards are necessary in the ever-increasing integration of financial markets across the world. Perhaps no better illustration of this fact exists than the recent financial crisis which resulted in an increased co-ordinating mechanism for international financial reforms and which resulted in the creation of the Financial Stability Board. Nonetheless, international financial standards have mostly been in applicable and/or irrelevant in the less-developed countries which constitute the majority of countries in the world. Even when they are adopted as laws in these countries, their implementation is a challenge. This questions the relevance of these standards to those countries and ultimately the effectiveness of instituting such standards, especially as over 80% of the countries of the world cannot effectively apply them. This article considers these issues and assesses other possible alternatives to international financial standards, particularly focusing on the international regulation of capital requirements for financial institutions especially under Basel III.