Sunday, November 14, 2004
New International Financial Architecture
Per Barry Eichengreen, 1999?
The UK government proposes merging the IMF, the World Bank, and the Bank for International Settlements (BIS) to create a single superregulator of financial markets. The French propose vesting additional decision-making power in the Interim Committee of finance ministers, which oversees the operation of the IMF, with the goal of enhancing accountability, allowing the institution to respond more quickly to crises, and not incidentally giving Europe a counterweight to the disproportionate influence enjoyed by the US Treasury as a result of its physical and intellectual proximity to the Fund. The German government has mooted the idea of target zones for exchange rates to prevent currencies from misbehaving. The Canadian government proposes an international credit-rating agency, Jeffrey Garten an international central bank, Jeffrey Sachs an international bankruptcy court. The one thing that all these proposals have in common is their impracticality. They have not a snowball's chance in hell of being implemented. They all assume a degree of intellectual consensus and political will that simply does not exist.
My conclusions and recommendations fall under three headings: crisis management, crisis prevention, and crisis management.
Better information on the economic and financial affairs of governments, banks, and corporations will strengthen market discipline (encourage lenders to ration credit to borrowers who fail to take the steps needed to maintain their financial stability) and help policymakers to identify the need for corrective action. Upgrading the supervision and regulation of financial markets and especially banks will strengthen the weak link in the financial chain. Exchange rate stability will encourage banks and corporations to hedge their foreign exposure, enhancing their ability to withstand unexpectedly large exchange rate changes.
Although some progress has been made in these areas, much remains to be done. A first area requiring a major international initiative is international financial standards. In a world of integrated financial markets, international financial stability is impossible without domestic financial stability. Stabilizing the financial system consequently requires institutional reforms extending well beyond policies toward external trade and payments. . . It extends to the use of internationally recognised auditing and accounting practices so that lenders can accurately assess the financial condition of the banks and corporations to which they lend. It extends etc, etc. . . While these are problems for individual countries to address as they see fit, whether they arrive at an adequate solution is also of pressing concern to the international policy community, given the scope for financial problems to spill contagiously across borders.
The UK government proposes merging the IMF, the World Bank, and the Bank for International Settlements (BIS) to create a single superregulator of financial markets. The French propose vesting additional decision-making power in the Interim Committee of finance ministers, which oversees the operation of the IMF, with the goal of enhancing accountability, allowing the institution to respond more quickly to crises, and not incidentally giving Europe a counterweight to the disproportionate influence enjoyed by the US Treasury as a result of its physical and intellectual proximity to the Fund. The German government has mooted the idea of target zones for exchange rates to prevent currencies from misbehaving. The Canadian government proposes an international credit-rating agency, Jeffrey Garten an international central bank, Jeffrey Sachs an international bankruptcy court. The one thing that all these proposals have in common is their impracticality. They have not a snowball's chance in hell of being implemented. They all assume a degree of intellectual consensus and political will that simply does not exist.
My conclusions and recommendations fall under three headings: crisis management, crisis prevention, and crisis management.
Better information on the economic and financial affairs of governments, banks, and corporations will strengthen market discipline (encourage lenders to ration credit to borrowers who fail to take the steps needed to maintain their financial stability) and help policymakers to identify the need for corrective action. Upgrading the supervision and regulation of financial markets and especially banks will strengthen the weak link in the financial chain. Exchange rate stability will encourage banks and corporations to hedge their foreign exposure, enhancing their ability to withstand unexpectedly large exchange rate changes.
Although some progress has been made in these areas, much remains to be done. A first area requiring a major international initiative is international financial standards. In a world of integrated financial markets, international financial stability is impossible without domestic financial stability. Stabilizing the financial system consequently requires institutional reforms extending well beyond policies toward external trade and payments. . . It extends to the use of internationally recognised auditing and accounting practices so that lenders can accurately assess the financial condition of the banks and corporations to which they lend. It extends etc, etc. . . While these are problems for individual countries to address as they see fit, whether they arrive at an adequate solution is also of pressing concern to the international policy community, given the scope for financial problems to spill contagiously across borders.
# posted by IJ @ 2:05 PM 
