International Monetary Affairs Research Articles

Assessing the Potential for Global Economic Governance Reform

Every dynamic social system’s adaptive capacity is finite. Eventually, the ability of the system’s legal and institutional arrangements to adapt to the changing operational context is exhausted. At this point, unless the system is significantly reformed, it begins losing its legitimacy and efficacy.This article contends that the structure, operation and scale of the global economy has changed so dramatically that the current arrangements for global economic governance are approaching this crisis moment. They are failing to deliver an inclusive, sustainable and efficient international economic system that can contribute to peace, prosperity and human welfare. Their governance arrangements and operating practices and procedures have not been adequately adapted to the new realities of the international political economy. Key institutions are only slowly adjusting their current decision-making practices to the fact that the balance of economic power among their members has shifted. They have also been slow in responding to the growing importance of such non-state actors as corporations, civil society organizations and subnational governments in the governance of the global economy.However, the political will to make the necessary changes to the institutional arrangements for global economic governance is lacking. This means that in the short to medium term, absent a serious crisis, there is limited potential for reform. However, this does not mean that opportunities for meaningful partial reforms do not exist. Those actors that are interested in reform need to carefully seek out those opportunities and, once identified, use them to make the system more participatory, accountable and responsive to the concerns to all stakeholders in the system. This in turn should enhance the capacity of the system to respond productively to future opportunities for more profound changes in global economic governance.In making this case, the article first briefly describes the key features of the order established after World War II. Second, it discusses some of the changes that these institutions have undergone over the past 70 years. Third, it discusses the adjustments that, in fact, have been made in global economic governance. It also indicates some ways in which opportunities for making the system more inclusive, responsive and accountable can be identified. Finally, it offers suggestions regarding possible changes within the current order and on the role entities like the Group of 20 and the BRICS grouping of Brazil, Russia, India, China and South Africa can play in promoting these changes.It should be noted that, due to space limitations, while this article discusses global economic governance in general, it concentrates primarily on the cases of the two most prominent institutions in global economic governance - the International Monetary Fund (IMF) and the World Bank Group (the World Bank). The reason for focusing on the IMF is that it is the most significant multilateral institution active in the governance of international financial and monetary affairs. The World Bank is an important funder of development activity even if it is not the largest such lender. It is the model that was used in setting up all of the regional multilateral development banks (MDBs) and it has had an influence on the structure and function of other MDBs as well, such as the Asian Infrastructure Investment Bank. It has also been a thought leader in the area of development finance.

Private Enforcement of International Monetary Law: Arbitration of Investment Treaty Claims Relating to Foreign Exchange Restrictions

International economic activity depends on the cross-border flows that characterize economic globalization—principally of goods, services, capital and labour. These flows all have in common that they involve some element of transnational transfers of funds. The international regulation of trade, investments and other economic activities is therefore inextricably linked to the regulation on the international plane of the transfer and currency conversion such funds, i.e. on international monetary law. A closer look at the political reality of international monetary affairs offers scant reason to presume that the existing liberal paradigm of free capital mobility and market-responsive exchange rate flexibility is beyond challenge or a potential reversal. Yet, rules exist on the international plane to ensure that exchange rates and capital flows remain free from restrictions, manipulation and distortion. In the Post-War international economic order and global institutional set-up, the task of enforcing the rules of international monetary law fell upon the International Monetary Fund. This role was enshrined in GATT 1947 and remains essentially intact. Nonetheless, in recent years, the efforts of the Fund to enforce such rules has not been sufficient to quell allegations against States of exchange-rate misalignment and currency manipulation. This paper, which builds on the author’s ongoing PhD research, looks at private enforcement of international monetary law and asks whether investment arbitration of exchange-rate disputes may offer an alternative enforcement mechanism that might result in positive externalities, benefitting all investors, traders and other non-disputing third parties, and thereby may help restoring trust in trade and investment. The paper seeks to confirm the availability, practicality and functionality of arbitral process to resolve disputes relating to currency convertibility. The paper first explores whether investment disputes relating to exchange rate restrictions are arbitrable for reasons of public policy and the political sensitivity of the interests concerned and, if so, whether and under what conditions any resulting arbitral awards nonetheless may be refused recognition and enforcement. In a second step, the enquiry interprets the scope of application and manner of application of substantive international investment law to determine whether such disputes fall within the scope of investment treaty protections and whether such protections should be restrictively applied to such disputes.

Bretton Woods and the Financial Crisis of 1971 (a) and (B) (Abridged)

In August 1971, US President Richard Nixon must decide how to respond to a growing “run” on the US dollar. Declining confidence in the dollar has led some national trading partners to redeem dollars for gold at the US Treasury's gold window. Nixon has convened an urgent conference with his economic advisers at Camp David to consider a response. The two dominant policy alternatives are (a) gradual intervention proposed by central banker, Arthur Burns; and (b) “shock treatment” (devaluation of the dollar by abandoning the commitment under the Bretton Woods Agreement to convert dollars into gold at the rate of $35/ounce) proposed by Treasury Secretary John Connally. The task for the student is to assess the situation and recommend a course of action.The A case describes the Bretton Woods system, the run on the dollar, and Nixon's policy dilemma. The B case gives the text of Nixon's 1971 address outlining his New Economic Policy. This A and B abridged case, which has been taught successfully in Darden in-person and online classes, shortens the total presentation by eliminating some of the quoted material; the student task in this case is to analyze Nixon's decision and decide on next steps. The C case presents a brief epilogue. Excerpt UVA-F-1837 Rev. Jul. 21, 2020 Bretton Woods and the Financial Crisis of 1971 (A) and (B) (Abridged) This could be the most important weekend in the history of economics since March 4, 1933. —Herbert Stein, Chairman of the Council of Economic Advisers, August 13, 1971 On August 15, 1971, President Richard Nixon addressed the nation to introduce a New Economic Policy that would dramatically change the stance of the United States in international monetary affairs. This policy—reached after a dramatic debate among advisers—would impose a special import tax surcharge and suspend the convertibility of dollars for gold. These actions would abandon the Bretton Woods agreement that had underpinned global finance since 1945. Before his speech, Nixon reflected upon why a new policy was necessary and what had changed in the world to warrant a new policy. How would US voters and foreign trading partners respond to this new policy? . . .

Atlas constrained: the US external balance sheet and international monetary power

ABSTRACTWe address the impact on international monetary power of the size and nature of the US's international financial assets and liabilities. Financial globalization makes critical a focus on a nation's international financial assets and liabilities, its ‘external balance sheet’. We suggest an expansion of Cohen's existing framework of international monetary power to include the implications of valuation changes in these external balance sheets, focusing on sources of valuation, sensitivity and vulnerability of the US economy to these changes and implications for US ability to use monetary statecraft. By focusing on developments since 2007 and on events over the financial crisis period, we show that the increased size and nature of the US's external balance sheet has reduced US autonomy and monetary power. Underpinning the changes in the US's external balance sheet are activities of private financial market actors whose influence in international monetary affairs has grown markedly.

The Federal Reserve and the Global Economy

The second Per Jacobsson Foundation Lecture of 2014, “The Federal Reserve and the Global Economy,” was presented by Stanley Fischer, Vice Chairman of the Board of Governors of the Federal Reserve System, on Saturday, October 11, in the Jack Morton Auditorium at George Washington University in Washington, DC, in conjunction with the Annual Meetings of the International Monetary Fund and World Bank. The event was moderated by Per Jacobsson Foundation Chair Guillermo Ortiz.The Per Jacobsson Foundation was established in 1964 to commemorate the work of Per Jacobsson (1894–1963) as a statesman in international monetary affairs. Per Jacobsson was the third Managing Director of the IMF (1956–63) and had earlier served as the Economic Adviser of the Bank for International Settlements (1931–56). Per Jacobsson Foundation lectures and contributions to symposia are expressions of personal views and intended to be substantial contributions to the field in which Per Jacobsson worked. They are distributed free of charge by the Foundation. Further information about the Foundation may be obtained from the Secretary of the Foundation or may be found on the Foundation’s website.

The UK’s Policy towards European Integration and Her Strategy in International Monetary Affairs

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Why Soft Law Dominates International Finance--and not Trade

International financial law is in many ways a peculiar instrument of global economic affairs. Unlike international trade and monetary affairs, where global coordination is directed through formal international organizations, international financial law arises through inter-agency institutions with ambiguous legal status. Furthermore, the commitments made by regulatory officials participating in such forums are non-binding. This divergence is perplexing, especially when comparing international financial law to international trade. Both trade and finance comprise key areas of 'international economic law' and their rules have important distributive consequences for global markets and market participants. This article suggests that in order to understand soft law's value as a coordinating mechanism, an institutional assessment of the way that law is enforced is necessary. Under close inspection, international financial law departs from traditional public international law notions of informality and can in fact be 'harder' than its soft-law quality suggests. This feature helps explain why international financial rules, though technically non-binding, are often relied upon. The predominance of international soft law in finance does not, however, imply that it is without flaws, and this article highlights important structural deficiencies that the World Trade Organization, a more mature legal regime, largely avoids. Oxford University Press 2010, all rights reserved, Oxford University Press.

The international monetary system: diffusion and ambiguity

Ample evidence exists to suggest that the distribution of power in international monetary affairs is changing. But where does monetary power now reside, and what are the implications for governance of the international monetary system? On these questions, uncertainty reigns. The aim of this essay is to shed some new light on the dynamics of power and rule setting in global finance today.

The Future of Money

The Future of Money. By Benjamin J. Cohen. Princeton: Princeton University Press, 2003. 312p. $29.95.Benjamin Cohen has produced yet another excellent volume on the political economy of international monetary affairs, this time with a worthy successor to his previous opus, The Geography of Money (1998). Like most of Cohen's scholarship, The Future of Money displays the author's remarkable facility with the vast breadth of issues, theories, puzzles, and esoterica associated with monetary matters, as well as a confident command of monetary policy and history. Future is perhaps less ambitious than Geography, but it is tight, well argued, and not wanting for important claims.

The Battle for Bretton Woods: America, Britain and the International Financial Crisis of October 1967-March 1968

Previous accounts of American foreign policy in the 1960s have argued that the financial crisis of October 1967-March 1968 marked the beginning of the decline of American influence in world affairs. In the specific context of Anglo-American relations, some studies have also emphasized that a relationship famed for its intimacy in international monetary policy was now becoming increasingly distant. Through an examination of Anglo-American economic relations during the international financial crisis of 1967-68, this article contends that whilst the financial difficulties of the late 1960s were clearly an unwelcome development for the United States, its ability to shape and influence the conduct of its allies in international monetary affairs had not been seriously damaged. Moreover, although the close economic relationship between Britain and the United States would later be dramatically affected by the financial shocks of the 1970s and British membership of the Common Market, during the devaluation and the ensuing gold crisis of 1968, the two countries had continued to work closely together to shore up the foundations of the international monetary system.

International Law and State Behavior: Commitment and Compliance in International Monetary Affairs

Why do sovereign governments make international legal commitments, and what effect does international law have on state behavior? Very little empirical research tries to answer these questions in a systematic way. This article examines patterns of commitment to and compliance with international monetary law. I consider the signal governments try to send by committing themselves through international legal commitments, and I argue that reputational concerns explain patterns of compliance. One of the most important findings is that governments commit to and comply with legal obligations if other countries in their region do so. Competitive market forces, rather than overt policy pressure from the International Monetary Fund, are the most likely “enforcement” mechanism. Legal commitment has an extremely positive effect on governments that have recently removed restrictive policies, which indicates a desire to reestablish a reputation for compliance.

The Legalization of International Monetary Affairs

For the first time in history, international monetary relations were institutionalized after World War II as a set of legal obligations. The Articles of Agreement that formed the International Monetary Fund contain international legal obligations of the rules of good conduct for IMF members. Members were required to maintain a par value for their currency (until 1977), to use a single unified exchange-rate system, and to keep their current account free from restrictions. In this article I explore why governments committed themselves to these rules and the conditions under which they complied with their commitments. The evidence suggests that governments tended to make and keep commitments if other countries in their region did so as well. Governments also complied with their international legal commitments if the regime placed a high value on the rule of law domestically. One inference is that reputational concerns have a lot to do with international legal commitments and compliance. Countries that have invested in a strong reputation for protecting property rights are more reluctant to see it jeopardized by international law violations. Violation is more likely, however, in the face of widespread noncompliance, suggesting that compliance behavior should be understood in its regional context.

Fostering ‘the bank that rules Europe’: the Bank of England, the Allied Banking Commission, and the Bank deutscher Länder, 1948–51

Without a doubt the Bundesbank, the German central bank, enjoys a formidable reputation in the United Kingdom. It is seen as a most important and powerful institution, as an independent, well-functioning and sometimes even stubborn player in the realm of German, European and international monetary affairs. Therefore it is not difficult to find British newspaper headlines dealing with it. Above all, in times of monetary upheaval, the Bundesbank is understood to be an institution which ‘allows a flicker of hope’ and on which markets ‘keep a nervous eye’. Probably even more telling is the fact that some years ago a book was published in the UK which presents the German central bank in its title as ‘the bank that rules Europe’ and which maintains that ‘the Bundesbank took the place of the Wehrmacht as the most known and most feared German institution’.

The Economic Crisis of 1968 and the Waning of the “American Century”

IN EARLY 1968, THE MOST SERIOUS ECONOMIC CRISIS since Great Depression shook Western world. The disruption exposed a variety of economic ills plaguing U.S. and world economies, some of recent vintage but others with roots reached back a decade or more. The problems, both long-term and short-run, were tightly intertwined, and they culminated in March in a speculative run on gold Time magazine called the largest gold rush in history, a frenetic speculative stampede ... threatened Western world.' Among policymakers in Washington, mood was appropriately tense. Everybody was just petrified, recalled Undersecretary of Treasury Joseph W. Barr. was a hair-raising period in which we literally had to watch gold markets day by day and hour by hour. At National Security Council, Edward Fried, a specialist in international monetary affairs, feared that this was not something was any longer under control. President Lyndon B. Johnson's national security adviser, Walt W. Rostow, briefed president on stakes at a most important moment in postwar history: a misstep, he wrote, could set in motion a financial and trade crisis which would undo much we have achieved in these fields in past twenty years and endanger prosperity and security of Western world.2 It is one of more intriguing features of history of 1960s that, despite its drama and apparent significance, economic crisis of 1968 has been so completely lost to sight. Its eclipse began almost immediately. The basic issues involved in crisis-the balance of payments, gold exchange standard, international monetary affairs and regime administered them-were complex, and their esoteric nature was, to much of public, both intimidating and incomprehensible. When Time ran a cover story on crisis, it noted apologetically such subjects are often considered too complicated to have wide reader

Historical dictionary of the International Monetary Fund

The International Monetary Fund was established in 1946 to supervise the workings of the international monetary system and to maintain a code of conduct among member nations. The entries in the Dictionary describe the economic and financial concepts employed by the Fund, its operational policies and facilities, its departmental structure and staffing, and its decision making authority, including the system of weighted voting by member countries. This volume fully updates and expands the 1993 edition and gives an account of the new facilities, policies, and programs used since then to counter the various international problems including the Mexican and Asian crises, the debt problems of the poorer countries, and the transformation of the communist countries to market-based economies. To this end, this edition includes entries outlining IMF-supported programs in 16 member countries. Praise for the first edition: Recommended for anyone studying international monetary affairs. --CHOICE ...a unique contribution to international studies and economics collections. --WILSON LIBRARY BULLETIN Humphreys has performed a valuable service...neatly encapsulates a half-century of international economic developments. ..immensely useful reference work. --FINANCE & DEVELOPMENT

Golden Fetters: The Gold Standard and the Great Depression, 1919-1939.

This book is a reassessment of the international monetary crises of the post-World War I period that led to the Great Depression of the 1930s. It also analyses the responses of the world economic powers to the Depression and how new monetary policies set the stage for the watershed post-World War II system established at Bretton Woods. It offers new theories of what effect the Great Depression had on the collapse of the world monetary system, and what effect the collapse had on deepening and prolonging the Depression, by exploring the link between global economic crisis and the the gold standard (the framework for international monetary affairs until 1931). The events described had a profound effect upon twentieth-century history: the Depression abetted the rise of Hitler and the demise of the gold standard is a historical cause of inflation. Available in OSO: http://www.oxfordscholarship.com/oso/public/content/economicsfinance/9780195101133/toc.html(This abstract was borrowed from another version of this item.)

Golden fetters: the gold standard and the Great Depression, 1919-1939

This book is a reassessment of the international monetary crises of the post-World War I period that led to the Great Depression of the 1930s. It also analyses the responses of the world economic powers to the Depression and how new monetary policies set the stage for the watershed post-World War II system established at Bretton Woods. It offers new theories of what effect the Great Depression had on the collapse of the world monetary system, and what effect the collapse had on deepening and prolonging the Depression, by exploring the link between global economic crisis and the the gold standard (the framework for international monetary affairs until 1931). The events described had a profound effect upon twentieth-century history: the Depression abetted the rise of Hitler and the demise of the gold standard is a historical cause of inflation.

U.S. Economic strategies against Western Europe: From Nixon to Reagan

This paper seeks to examine the destabilizing role of the U.S. in international monetary affairs by charting the changing economic and monetary policies of successive U.S. administrations. It suggests that U.S. economic policy since the beginning of the 1970s can only be explained as a reaction to the relative decline of the U.S. economy vis-à-vis Western Europe and Japan. To ward off this decline the U.S. has pursued unilateral policies of dollar devaluation and revaluation which have often worked to the disadvantage of its rivals and the Third World. In detail, this paper examines the nature and consequences of a dollar devaluation policy under Nixon and Carter, of the strong dollar policy of the first Reagan administration, and of the renewed devaluation policies of Reagan's second administration. This paper shows how these policies have evolved against a background of deepening international crisis (and with reference to U.S. geopolitical strategies and the sanction of protectionism). Lessons are drawn for the European Left and future scenarios are mapped out concerning possible geographical alignments at the turn of the century. This paper places the debt crisis in the wider context of an asymmetrical and dysfunctional economic and monetary order.

Reaganism and the future of the international payments system

When Ronald Reagan faced the delegates to the 1981 World Bank-IMF annual meetings in Washington and declared that, We who live in free market societies believe that growth, prosperity and ultimately human fulfilment, are created from the bottom up, not the government down. ' he was doing much more than simply repeating another of the sunny banalities for which his presidential discourses have been justly famed. Underneath was an ideological commitment to policy action, for whose strength of purpose many of the participants were not prepared. For, on top of the traditional American game of World Bank-bashing, came an unexpected attack on the nature and operations of the IMF. If, within the rather strange contours of current conservative thinking, the World Bank could be singled out forcriticism as an institution of international Keynesianism and an instrument for financing 'socialism' throughout the world, the same charges could hardly be levelled at the IMF, a monetarist institution much beloved of the international banks, not least the American ones. But the major shift of emphasis, from the 1980 meetings with their consensus on the need to expand international liquidity to cope with rising oil prices and the burden of Third World debt charges, to the 1981 meetings with their emphasis on restricting the volume and tightening the terms of access to multilateral sources of credit, is not the result of a passing whim of the incumbent American administration. On the contrary, it is fully consistent with the domestic policy programme and general world-view of the current ruling coalition in the United States. It is symptomatic of the collapse of the Keynesian consensus and the accompanying redistributive ethic, within the US and beyond. This significant shift in the prevailing currents of political opinion in the major capitalist countries will profoundly influence the future course of international monetary and financial affairs.

Demand Management and Exchange Rate Policy: The Italian Experience: Reply to Comments by Gandolfo and Padoan

*Senior Advisor for International Monetary Affairs, Ministry of Budget and Planning, Rome. 'For the basis of the published article, which contains a more detailed discussion of the specification of the model, the empirical results, and the data used, see Giuseppe Tullio, "A Quarterly Disequilibrium Model of the Italian Economy with Endogenous Exchange Rates" (unpublished, June 2, 1980). A copy is available upon request to the author, whose address is Ministero del Bilancio e della Programmazione Economica, Segretaria Generale Della Programmazione, Via XX Settembre 97, 00187 Roma, Italy.