Customer Reviews

Toward a New International Financial Architecture: A Practical Post-Asia Agenda

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Eichengreen clearly demonstrates a comprehensive understanding of the international financial structure. He provides conservative and realistic criticisms for the reformation of the IMF. The Institute for International Economics should be proud of his nonpartisan attempt to quantify economic and financial theory into reliable, real life circumstances. This publication, like many other publications by the institute, is overtly academic and may not represent the best option for readers with no formal backqround in economics or finance. It is perhaps most relevant for government and corporate policy makers, academics, and those with a serious interest in international finance.

Barry Eichengreen's "Towards a New International Financial Architecture" remains relevant, and unfortunately unimplemented, over a decade after its release. The purpose of Eichengreen's primer on international finance is to educate policymakers on practical solutions. Impractical solutions include alternatives "that are deemed politically unrealistic, technically infeasible, or unlikely to yield significant improvements in the way crises are prevented, anticipated, and managed."

Eichengreen argues for better regulation in the developing world were "thin" financial markets exist. These countries need to implement Chilean style capital controls and began an effort towards greater transparency, accountability, and liquidation procedures. This will essentially act as a tax to detract Portfolio Investment without greatly deterring Foreign Direct Investment. After the respective financial market becomes "thick" it can slowly wither away capital controls, and other unnecessary regulation, and have liberalized capital flows.

Eichengreen argues for a far more conservative stance regarding international regulation. "In principle, the solution is straightforward: strengthen supervision and regulation of the banking system." He wants NGO's, like the Basle Committee, to take a more proactive step towards stricter standards. The IMF will play a substantial role in working with these NGO's and coordinating between them. Theoretically superior regulatory solutions, such as a World Financial Authority, are not politically feasible. The best we can do is "bail-in" the private sector through tighter self-regulation.

When a crisis does occur it is the IMF's role to provide lender of last resort functions. It's role in the Asian Crisis turned a liquidity crisis into a severe recession/depression. The IMF needs to be better able to identify when a country is suffering from a chronic balance of payments crisis or an acute liquidity crisis and deal with it accordingly.

It remains dubious whether Eichengreen's reforms would have prevented the international financial crisis of 2008. However, his suggestions are still a better option than the existing international financial architecture. It is unlikely, even after the most recent international crisis, that his 'practical' reforms will be implemented...