The Governance And Regulation Of Financial Flows

The Breton Woods system provided no governance for international financial flows. Although Keynes was quite keen on the topic, the other conferees did not seem in 1944 to be much concerned about it. However, the achievement of capital account convertibility in the advanced countries as of 1959 ( some four years after realizing current account equilibrium) and the subsequent development of capital markets in the 60`s, 70`s and 80`s, propelled this issue to the fore. In the wake of the Asian crisis in 1997, and the demonstrated globalization of financial markets, it could no longer be ignored.  The concern with the growth of financial instability impelled the G.7 (the group of seven major industrial countries) in February 1999 to establish the ?Financial Stability Forum? with the aim of promoting international financial stability through improved exchange of information, cooperation with respect to financial supervision and surveillance, and streamlining standards and norms in the various participant countries. Naturally, this work cannot be confined to financial flows and the financial institutions, as it has direct implications with respect to macroeconomic policies, the various standards of the financial system and its judicial framework. In each of the various areas, a key standard was established with a lead institution responsible for developing the necessary codes, rules, norms, and standards. Consequently, the BIS has over the last decade been the forum in which officials from the participating countries and international organizations, without the presence of private sector agents, have concluded numerous agreements aiming at establishing cooperative modalities for collecting systematically information on capital and monetary flows and disseminating them to members and the public. Naturally, global financial governance involves conduct in crises, obligations on the source authorities as well as the recipient country authorities and above all, setting up proper models of conduct and codes of standards for private investors. On balance, a universal code applied by all and enforced by an impartial international authority, such as the IMF, should be feasible.