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Symposium 2014

Virtual Library File - International Monetary System and Sustainability

The Challenge

The 2008/09 economic and financial crisis taught the world an important lesson: while the nature of the financial industry has become truly global, with an increasing number of actors and institutions ...

The 2008/09 economic and financial crisis taught the world an important lesson: while the nature of the financial industry has become truly global, with an increasing number of actors and institutions on the credit market, regulation is still highly fragmented among different national supervisory authorities. To maintain systemic stability and prevent contagion, more is required than merely ensuring the orderly operation of individual financial institutions. Different regulators—including monetary authorities—must cooperate in order to achieve better, but not necessarily more, regulation. Better regulation should aim at identifying overleveraging and emerging vulnerabilities, ensuring the adequate pricing of risk, and promoting better incentives for prudent behavior. In pursuing these targets, regulation will require changes to institutional structures, the content of rules, and especially the structures of supervisory agencies.

The 70th Anniversary of the Bretton Woods Conference in 1944 is a good time to review its legacy, implications for today, and lessons from the Great Recession (2007-2009), including the implications for China’s integration with the global economy and possible paths for the future functioning of the International Monetary System (IMS). Any review of the IMS cannot be divorced from the geo-political and geo-strategic issues of globalization and their complex interactions between nations, and at a deeper level, what Samuel Huntington (1996) called “The Clash of Civilizations”.

The fact that the Cold War drums are beating again means that we need to look at the evolution of the IMS from a broader perspective and over a longer time horizon. The French historian/geographer Ferdinand Braudel (1902-1985) considered that the history of civilizations must be considered within at least three rhythms or time scales: narrative, involving events and personalities; episodic, covering decades of ten to fifty years; and the longue durée – shifts of terrain, climate and technology that cover centuries or more.