International Financial Order Research Articles

Change Management

Image: Ad MeskensPocket change—mountains of it can shape or re-shape society, politics, and most certainly the economy. The rise and fall of governments, democracies, and tyrannies are all too often at the mercy of the ebb and flow of plain, hard cash. Currencies today are very much the defining feature of nations, individually and collectively. A flailing and fragmented Europe seeks to hang together—retain its global reach—on the strength of a single currency that has taken on a life or near-death of its own, its very existence becoming an end in itself. Across Africa and Asia, the Americas north and south, continents and peoples are all too often held hostage by forces unleashed in the name of money. It is this kaleidoscope of silver, gold, and paper, often in the magnitude of tsunamis, that we set out to explore in the Summer issue of World Policy Journal.We begin with The Big Question, a selection of global thinkers reflecting on how much confidence each has in his or her nation’s banking system—the fundamental conduit of value within countries and across borders. Shailendra Bhandare, assistant keeper of the Heberden Coin Room of Oxford’s Ashmolean Museum, takes us through coinage across the centuries. In our Anatomy feature, we look at some of the world’s mini-Bitcoins, or localized currencies, and the role they play in the international financial order. Then Stanley Pignal, The Economist’s new banking editor, warns of the weaknesses and strengths of these institutions that create value from the deposits in their vaults. Map Room examines the role remittances play in shaping or starving Asian economies, while our Timeline lays out the peaks and troughs of developed and developing economies over the last 25 years. From Argentina, Meredith Hoffman explores the perils of a currency that goes off the rails, while in Beijing, Donald Straszheim looks at the strength of what may be the world’s next global reserve currency—the renminbi. Finally, for our Conversation, we turn to London, where Xavier Rolet, a French banker who has taken the reins of the London Stock Exchange Group, seeks to bring intelligence and rationality to the jungle of trading money.In our Portfolio, photographer Ahmed Deeb and writer Max Siegbelbaum go underground in Gaza to profile a 12-year-old Palestinian and the illicit tunnels he and his mates are burrowing between Gaza and Egypt—circumventing the Israeli embargo to bring contraband to their countrymen. The Century Foundation’s Michael Wahid Hanna warns of the toxic confluence of religion and politics in fragile, contemporary Egypt. In Burundi, Rosalie Hughes is on hand for the arrival of Philippe Starck’s Idea Box, that holds new hope and promise for connecting the most isolated and forgotten refugees with the modern world. Sabrina Natasha Premji has some strong thoughts from Kenya on the sorry state of early childhood education and the head start that young people so deeply crave. Transgender politics are becoming an increasingly fraught point of contention in India, as Jeff Roy explains from Koovagam. And the remarkable journey of Japan away from nuclear self-sufficiency to the post-Fukushima era is the little-understood tale woven by Paul Sullivan. Finally, in his Coda, World Policy Journal editor David A. Andelman chronicles the transformation of the media world over the last half century.

DESREGULACIÓN FINANCIERA Y CRISIS ECONÓMICA GLOBAL

En este artículo se revisan los cambios en las normas y prácticas en el ámbito financiero a nivel global, y se lo relaciona con la crisis financiera de los Estados Unidos de 2007 y la actual crisis económica europea. Partiremos del análisis del Informe de la Comisión Federal Investigadora de la Crisis Financiera de los Estados Unidos, de Enero de 2011.Trataremos de establecer en forma preliminar la relación entre los cambios en las normas, prácticas y políticas clásicas establecidas desde 1933 en los Estados Unidos – y los acontecimientos posteriores. En especial, se busca relacionar la política de desregulación financiera impuesta a partir de 1971, con el fin del Acuerdo original de Bretton Wood de 1944, en el orden monetario financiero internacional, en especial, la abrogación de 1999 de la Ley Bancaria -- legislación Glass – Steagall -- que separaba al sector financiero ligado a la producción y distribución física, del sector financiero puramente especulativo, que contemplaba además una garantía y protección a los primeros, y severas regulaciones a los segundos. A partir de entonces, la especulación comenzó a desplazar a las actividades financieras ligadas al sector real, como lo atestigua el crecimiento de los derivados financieros. Al presente, la crisis financiera norteamericana se ha hecho europea, (Portugal, Irlanda, Grecia y España), y es en realidad la crisis de un conglomerado bancario internacionalizado, y esta complicando las finanzas estatales con un endeudamiento descomunal para salvar al sistema financiero especulativo, con el rechazo de las poblaciones, la crisis política y el riesgo creciente consiguiente.

The Financial Crisis, Contested Legitimacy, and the Genesis of Intra-BRICS Cooperation

The rise of the BRIC grouping (Brazil, Russia, India, China) is one of the most commented on phenomena in international politics of the past years. Yet little is known about how and why institutionalized cooperation between the BRIC countries began. This article makes two arguments. First, an unprecedented combination in 2008—a profound financial crisis among developed countries, paired with relative economic stability among emerging powers—caused a legitimacy crisis of the international financial order, which led to equally unprecedented cooperation between emerging powers in the context of the BRIC grouping. The BRIC countries were able to use their temporarily increased bargaining power to become agenda setters at the time—culminating in the International Monetary Fund quota reforms agreed on in 2010. This shows that even short periods of reduced legitimacy in global governance can quickly lead to the rise of alternative institutions—such as, in the case of the crisis that began in 2008, the BRIC platf...

A Reexamination of the Relationship between Global Finance and Democracy: Structural Domination or Mutually Constituting?

The outbreak of the global financial crisis and the subsequent Euro crisis provide a good opportunity to reexamine the relationship between global finance and democracy. This is because the crisis period has lay bare the political foundation of the global financial system. Before the crisis, it was often presumed that financial globalization was an inevitable trend, as was the consequential restraint of democratic politics at the national level. Capital mobility hypothesis and financial policy trilemma have supported this view. Under the condition of high international capital mobility, nation states cannot avoid sacrificing their autonomy in pursuing their economic policies. In other words, democratic governments cannot be as responsive to popular demands, so long as they remain adherent to the demands from global financial markets. However, the outbreak of global financial crisis and subsequent developments put an end to the belief in the possibility of self-regulating financial markets and brought about widespread popular protests against the global financial system and strong demands for strengthening financial regulation. Polanyi’s concept of “double movement” provides an appropriate explanation of this turnaround. Comprehensive and strong financial regulatory reforms have been pursued at both the international and national levels since the crisis. Consecutive G20 summits have been providing political legitimacy and dynamics to this financial reform drive. The Financial Stability Board and the Basel Committee on Banking Supervision have been instrumental in designing and developing new regulatory measures. The so-called ‘systematically important financial institutions,’ or SIFIs, and the shadow banking sector have received special attention because they were believed to be the main weak points of the pre-crisis global financial system. Financial regulatory and supervisory agencies have also been strengthened in the countries of all the major economies. If all these reform measures are to be successfully adopted at both the national and international levels, we may live under a completely different global financial order in the years to come. However, there are still important obstacles ahead, which reflect the fundamental nature of the comtemporary global political economy; namely, the coexistence of globally integrated financial markets and nationally divided regulatory authorities. Under these kinds of circumstances we can hardly be sure that financial regulatory measures will be implemented optimally. This means that the shape of a new international financial order will also be determined through national and international political processes. This is why we argue that the relationship between global finance and democracy should be viewed not from an one-way structural perspective, but from that of a mutually constituting political process. When we adopt this perspective, we come to ascertain that we are living in a period of another great transformation through which democracy and global finance can find a new compromise for their stable coexistence.

Do Industrialized Countries Hold the Right Foreign Exchange Reserves?

That central banks should hold foreign currency reserves is a key tenet of the post-Bretton Woods international financial order. But recent growth in the reserve balances of industrialized countries raises questions about what level and composition of reserves are “right” for these countries. A look at the rationale for reserves and the reserve practices of select countries suggests that large balances may not be needed to maintain an effective exchange rate policy over the medium and long term. Moreover, countries may incur an opportunity cost by holding funds in currency and asset portfolios that, while highly liquid, produce relatively low rates of return.

The Choice of Korea in a Changing International Financial Order: Linking Regional to Global in Multilateral Diplomacy

The Choice of Korea in a Changing International Financial Order: Linking Regional to Global in Multilateral Diplomacy

Whose legitimacy? Islamic finance and the global financial order

ABSTRACT Islamic finance is a fast growing segment of international financial markets. Deriving its core principles from the Quran and the Sharia, the objective of Islamic finance is to install a more equitable financial and economic order that at the same time is transaction-friendly. Thus, Islam could be seen as a foundation for the inclusion of the ethical and moral dimensions of economics and markets. This coincides with rising demand for Islamic financial products. Indeed, recent years have witnessed increasing efforts to develop and to institutionalise Islamic capital markets and above all, to make Islamic finance acceptable (and thus investable) to the mainstream. In this article, I use the question of legitimacy to explore whether Islamic finance offers an alternative to the existing international financial order. To this end, I take a closer look at the knowledge base from which Islamic financial products are constructed and assessed as well as the emerging international regulatory framework for Islamic financial markets. I conclude that efforts to expand the social constituency of Islamic finance to the transnational sphere of global finance are overly focused on its epistemic legitimation as normal financial activity. As a consequence, the currently emerging power, knowledge and governance structures for Islamic finance tend to emulate, and therefore largely reproduce, the existing global financial order.

Review of the International Financial Trends in Post Financial Crisis Era

It was difficult to assure simply that the world economy had entered a post financial crisis era. The paper, based on the study of other scholars, firstly analyzed the definition of the post financial crisis in-depth. And after pointing the profound cause of the subprime crisis, concerning the trends of the international finance and the reform of the international financial order, the author attempted to show the complexity of the international economic and financial situation.

The Financial Crisis and the Regulation of Credit Rating Agencies: A European Banking Perspective

Credit rating agencies (CRAs) bear some responsibility for the financial crisis that started in 2007 and remains ongoing. This is acknowledged by policymakers, market participants, and by the agencies themselves. It soon became clear that, given the depth of the crisis, CRAs would not be able to satisfy policymakers by eliminating flaws in their rating methods and improving corporate governance. Although the CRAs were more or less unregulated before the outbreak of the financial crisis, after the crisis started, politicians became increasingly vocal in demanding regulation. Initially, these demands were confined to a more binding form of self-regulation. But as the crisis progressed, the calls for state regulation grew ever louder. It became apparent after the November 2008 G-20 summit in Washington that state regulation could no longer be avoided. In Europe, the course had been set in this direction even before then. Since European policymakers saw the crisis as evidence that the Anglo-Saxon approach to the financial markets had failed, they believed they were now strongly placed to have a decisive influence on shaping a new international financial order. It is remarkable to note the shift in European policy from a self-regulatory approach, which was comparatively liberal in international terms, to quite rigorous state regulation of CRAs. Both the European Commission and the European Parliament drew up far-reaching plans. Although European policymakers knew that only globally consistent regulation would be appropriate for a new world financial order, their initial draft legislation was geared more toward stand-alone European regulation. While the final version of the European Union Regulation on Credit Rating Agencies focuses firmly on the European arena, the key point for all market participants is that this is unlikely to have an adverse effect on the global ratings market. It must nevertheless be recognized that the scope of the selected regulatory approach is extremely narrow. Certainly, it has the potential to improve the corporate governance of CRAs and prevent conflicts of interests. But it can do nothing to address the repeated calls for greater competition or for CRAs to be made liable for their ratings.

ASIA-EUROPE MEETING (ASEM): fostering a multipolar world order through inter-regional cooperation

Since its inception in 1996 ASEM has provided an opportunity for focussing relations between the EU and East Asia as a forum for informal multilayered dialogue and building a framework for enhanced cooperation in the political, economic and social/cultural fields. Inter-regionalism, of which ASEM is the incarnation in the EU-Asia relationship, developed into an important policy tool of the EU in an effort to maintain a multipolar setting. Regional identities in Asia are at a different level when comparing South East Asia, North East Asia, East Asia and South and Central Asia. ASEM contributed to a certain extent to the region building in East Asia. Although the economic pillar of ASEM turned out to be the more important one when compared to the political and the people-to-people pillars, it will not become the basis for a (deep) inter-regional free trade agreement because of the diversity of the Asian members, reinforced by the last ASEM enlargement. However, turning weakness into strength, ASEM could become the EU’s vehicle for a more holistic approach to Asia thereby fostering a more economic and political multipolar world order. The financial melt down of the international financial order lead to the rediscovery of the need for international cooperation not only on the level of business but also among states. Making use of ASEM, developed over the last 12 years, could provide the much needed platform in the EU-Asia relationship.

The Operation of the International Commercial and Financial Legal Order: The Lex Mercatoria and its Application — Moving from the Theories of Legal Positivism and Formalism to the Practicali

The Operation of the International Commercial and Financial Legal Order: The Lex Mercatoria and its Application — Moving from the Theories of Legal Positivism and Formalism to the Practicali

The International Monetary (Non-)Order and the 'Global Capital Flows Paradox'

This paper sets out to investigate the forces behind the so-called global capital flows paradox and related dollar glut observed in the era of advancing financial globalization. The supposed paradox is that the developing world has increasingly come to pursue policies that resulted in current account surpluses and thus net capital exports - destined primarily for the capital-rich United States. The hypothesis put forward here is that systemic deficiencies in the international monetary and financial order have been the root cause behind today's situation. Furthermore, it is argued that the United States' position as issuer of the world's premiere reserve currency and supremacy in global finance explain the related conundrum of a positive investment income balance despite a negative international investment position. The assessment is carried out in light of John Maynard Keynes's views on a sound international monetary and financial order.

The global economic system: asymmetries and inconsistencies

Purpose – To provide a systematic analysis of the contrasts, imbalances and suggestions for corrective action in the present globalized economic system and monetary and financial order in the framework of a conference organized by Webster University, Geneva (Switzerland) dealing with the outlook for international order.Design/methodology/approach – The paper is divided into two parts. The first provides an overview of the general characteristics of the globalized economy, of the interdependence of national and international orders and policy making and the issue of investments, technology transfer and global business. The second part contains a more detailed analysis of the international monetary and financial order, including the evolving role of the International Monetary Fund (IMF). While the paper provides a rigorous analysis of the institutional and policy issues, the analysis and the conclusions are accessible also to the non‐specialized reader.Findings – The paper focuses on the inconsistencies and...

Towards a new international financial order: Why reform progress is so slow

The limited progress made so far in reforming the international financial architecture cannot be attributed to insufficient reform-mindedness of the institutions involved or to a lack of reform proposals in the literature. Rather, progress is slow as almost every step towards reform involves serious trade-offs, which must be analysed carefully before reforms are implemented. Some of these trade-offs are of immediate concern for defining the role of international financial institutions, notably the IMF, with respect to crisis prevention and crisis resolution.

The importance of banks, the quality of credit and the international financial order: reflections on the present crisis in South East Asia

This essay considers the present financial crisis in South Asia, and how the international system might be better protected from the recurrence of such crises. It argues that, as with all major events, there were many causes. The essay focusses on the general tendency for bank lending to be unstable, which it argues was an underlying condition fro the crisis. The instability constitutes a problem for central banks, banks and their supervisors, both in borrowing countries, and also in lending countries. The essay suggests a number of ways in which international instability might be mitigated. This instability is an aspect of the problem faced by all countries of avoiding over-speculative conditions in domestic financial markets in order to mitigate fluctuations and preserve stable growth. JEL Codes: G15, F34, D02 Keywords: Financial crises, bank lending, financial risk mitigation

Great Transformations: A Polanyian Perspective on the Contemporary Global Financial Order

Half a century after the Bretton Woods conference, the world has changed in ways that would be startling to those who met in 1944 to build the constitution for the postwar international financial order. Particularly striking is the new power and influence of global financial markets. Policy makers from the 1940s would find themselves lost in today's globally integrated financial marketplace where assets are traded in enormous volumes across borders on a twenty-four hour basis. Indeed, as is explained below, the Bretton Woods negotiators explicitly sought to prevent the kind of global financial order that has now emerged. How did the financial world change so dramatically? How durable is the new globalized financial order?

Rescuing Brazil, reversing recession

Complete Disarray At least Brazilians are in agreement over one thing: 'Our country is in a very bad condition, without precedent in the history of the republic'. In Brazil everything depends on the state, and, at present, not only has the ship of state lost its way, but all its controls and guiding instruments have broken down. The crisis is not confined to certain economic matters, nor is it merely the result of adverse international conditions. It is the economic system as a whole which is drifting. No new investments are being made in productive activities and the country's industrial sector is collapsing; only the speculators are prospering. Brazil will reach the end of the 1 980s with a lower level of industrial employment than at the end of the 1 970s. Millions of people are joining the army of the under-employed. Our hope of ever overcoming underdevelopment is receding. Brazil has earned the dubious distinction of having the largest patch of poverty in the Western hemisphere. All this has happened despite the fact that for 30 years Brazil had one of the highest economic growth rates in the world and remains a country with great potential for development. Brazil's advantages are real enough: enormous stretches of unoccupied land; abundant energy resources to exploit; one of the ten largest domestic markets in the world; an impressive installed capacity for the production of capital goods; and, a potential for technological creativity only equalled in the Third World by India. All we lack in Brazil is the will to change the course of history, something which has become increasingly difficult for us through years of authoritarian rule and a situation of external dependence, which has reduced us to a simple complementary market for the developed economies. We are now being subjected to an 'adjustment' process, a kind of cosmetic surgery which will reshape us more to the taste of the bosses of the present international financial order and increase our dependence. The question that we, the overwhelming majority of Brazilians, must ask ourselves is: Does Brazil not have a sufficient reserve of patriotism and public concern that can change a course of events that is condemning millions of people to unemployment and starvation? Can

The Future Belongs to a Social Economy of Human Solidarity: A New Orientation in Theory and Practice

The economic and financial picture of the whole world in the early 1980s does not look at all good despite the optimistic rhetoric used by the leaders of the seven major industrial democracies during the May 1983 Summit Conference held in Williamsburg, Virginia, USA. Almost everywhere there are artificial monetary injections to produce another problematic boom with the well‐known residual effects, negative social and financial consequences. But beyond there are no visible signs that on this road the prevailing conditions of disequilibrium embedded in contemporary economies will vanish and a new, better international economic and financial order will emerge.

Order and Disorder in the World Economy: International Finance in Evolution

Crisis in the world economy has transformed the international financial order which has dominated since Bretton Woods. The emergence of world markets for credit and finance has accompanied the evolution from a principally international economy, based on relations among national producers, towards a more global economy dominated by transnational corporations (TNCs). The transnationalization of investment production has been encouraged by the policies of the International Monetary Fund (IMF), which promote capital imports for deficit nations on terms favourable to creditors rather than debtors.