Working Paper: CEPR ID: DP4970
Authors: Stijn Claessens; Geoffrey R. D. Underhill
Abstract: The international financial system has been the subject of much debate following the financial crises of the 1990s. While many reforms have been proposed for and implemented by mostly developing countries, few changes have been made to the international financial system itself. Fundamentally, the design, institutions, and governance of the international system remain very similar to those of two decades ago. The major changes in global financial markets, financial services industries and economies during this period, however, have rendered the international financial system and its governance of out date. In this paper, we analyse the causes and consequences of the failure to reform. We highlight the forces driving the need for changes in the governance of the international financial system, in particular the combination of the global integration processes and the increased role of the private sector. We then provide insights into the desirable institutional structure for international financial decision-making, also as it relates to the legitimacy of the international system in the eyes of the public worldwide. We also discuss the (political economy) factors inhibiting reform. We conclude with suggestions for future research.
Keywords: International financial arrangements; International financial institutions; International governance; Legitimacy; Political economy
JEL Codes: F33; F34; K33; N20; O19; P50
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| lack of reform (P11) | persistence of crises (H12) |
| increased financial integration (F30) | governance dynamics (H11) |
| growing role of the private sector (L33) | governance structure favoring private interests (P16) |
| institutional design (D02) | effectiveness in governance (H11) |
| lack of accountability (H83) | legitimacy of the international financial system (F30) |
| lack of accountability (H83) | public trust (H82) |