Author information:
Gusztáv Báger: Magyar Nemzeti Bank, Member of the Monetary Council. E-mail: bagerg@gmail.com
Abstract:
Over the past few decades, the international monetary and financial system has been a subject of constant economic debate. More recently, topics such as the activity of global financial institutions and corporations, developments in money and capital flows, international regulation and the role of central banks were thrust into the limelight by the outbreak of the financial crisis in 2007 and its culmination into a global crisis in 2008. The depth and impact of the crisis highlighted the deficiencies of the system, prompting participants to seek solutions that may facilitate sustainable, inflation-free and balanced economic growth by eliminating or at least mitigating the negative externalities of the system.With that in mind, one of the objectives of this study is to provide a brief presentation of the conceptual framework and main structural components of the existing system. This is also necessitated by the considerable changes that have taken place relative to the Bretton Woods system. The second objective of the study is to present a comprehensive overview of the complicated operation of the system by outlining the role and the interaction between the key elements of the system without intending to offer an in-depth examination of the details.We found that, owing to its significant deficiencies, the international monetary and financial system fails to meet the criteria of a well-functioning system. It is not suitable to keep exchange rate and capital flow developments in balance on a global scale, to ensure an optimal level of international liquidity, and to harmonise the relationship between international (economic and monetary policy) cooperation, spillovers and diverging volatility levels.
Cite as (APA):
Báger, G. (2017). Operation of the International Monetary and Financial System – Structural Tensions of a “Non-system”. Financial and Economic Review, 16(4), 151–186. https://doi.org/10.25201/FER.16.4.151186
Column:
Essay
Journal of Economic Literature (JEL) codes:
G01, G010, G21, G23, F33
Keywords:
monetary and financial system, global financial institutions and corporations, IMF, central banks
References:
Address of the Managing Director (1998) to the Board of Governors. Fifty-Third Annual Meeting. Washington, D.C. 6 October
Address of the Managing Director (1999) to the Board of Governors. Fifty-Fourth Annual Meeting. Washington, D.C.
Báger, G. (2010): Financial Globalization. United Nations Institute for Training and Research. Geneva, p. 62
Báger, G. (2011): Magyarország integrációja a nemzetközi pénzügyi intézményekbe (Hungary’s integration into the international financial institutions). Akadémiai Kiadó. Budapest
Bernanke, B. (2005): The Global Saving Glut and the U.S. Current Account Deficit. Speech delivered at the Sandridge Lecture, Virginia Association of Economists, Richmond, VA., 10 March. Online: https://www.federalreserve.gov/boarddocs/speeches/2005/200503102/
BIS (2011): Global liquidity – concept, measurement and policy implications. Report submitted by an Ad-hoc Group established by the Committee on the Global Financial System. Bank for International Settlements, November
BIS (2015): 85th Annual Report. Bank for International Settlement. Basel, 28 June Boughton, J.M. (2009): A New Bretton Woods? International Monetary Fund, Finance and Development, Volume 46, Number 1
Camdessus, M. – Lamfalussy, A. – Padoa-Schioppa, T. (2011): Palais-Royal Initiative. Reform of the international monetary system: a cooperative approach for the twenty first century. Online: http://global-currencies.org/smi/gb/telechar/news/Rapport_Camdessus-integral.pdf
Catão, L.A.V. – Milesi-Ferretti, G.M. (2013): External Liabilities and Crises. IMF Working Paper 13/113, International Monetary Fund, Washington (Journal of International Economics)
Coene, L. (2012): A New International Monetary System? In: Koeune, J.C. – Lamfalussy, A. (dir./eds.): In Search of a New World Monetary Order. P.I.E Peter Lang, Bruxelles, Bern, Berlin, Frankfurt am Main, New York, Oxford, Wien, pp. 161–166.
Chow, J. – Jaumotte, F. – Park, S.G. – Zhang, S. (2015): Spillovers from Dollar Appreciation. Online: https://www.imf.org/external/pubs/ft/pdp/2015/pdp1502.pdf
Dabla-Norris, E. et al. (2015): The New Normal: A Sector-Level Perspective on Productivity Trends in Advanced Economies. IMF Staff Discussion Note, 15/03 (Washington: International Monetary Fund). Online: http://www.imf.org/external/pubs/ft/sdn/2015/sdn1503.pdf
Edwards, S. (2005): Is the Current Account Deficit Sustainable? And If not, How Costly Is Adjustment Likely to be? NBER Working Paper No. 11541 (Cambridge, Massachusetts: National Bureau of Economic Research)
De Larosière, J. (2012): Can the IMF Become the Centrepiece of the International Monetary and Financial System? In: Koeune, Jean-Claude and Lamfalussy, Alexandre (dir./eds.): In Search of a New World Monetary Order. P.I.E. Peter Lang, Bruxelles, Bern, Berlin, Frankfurt am Main, New York, Oxford, Wien, pp. 191–194.
Fleming, J.M. (1962): Domestic Financial Politics Under Fixed and Under Floating Exchange Rate. IMF Staff Papers 12, pp. 969–980.
FSB (2016): Implementation and Effects of the G20 Financial Regulatory Reforms. 31 August, 2nd Annual Report. Online: http://www.fsb.org/wp-content/uploads/Report-on-implementation-and-effects-of-reforms.pdf
FSB (2015): Implementation and effects of the G20 financial regulatory reforms. Report of the Financial Stability Board to G20 Leaders. http://www.fsb.org/wp-content/uploads/Report-on-implementation-and-effects-of-reforms-final.pdf
Goldberg, L.S. – Kennedy, C. – Miu, J. (2011): Central Bank Dollar Swap Lines and Overseas Dollar Funding Costs. FRBNY Economic Policy Review, May, pp. 3–20.
Hofmann, B. – Takáts, E. (2015): International monetary spillovers. BIS Quarterly Review, 13 September
IMF (2007): World Economic Outlook. Washington, D.C., October
IMF (2008): World Economic Outlook. Washington, D.C., April
IMF (2014a): Global Financial Stability Report. Risk Taking, Liquidity and Shadow Banking. Curbing Excess while Promoting Growth. October 2014
IMF (2014b): World Economic Outlook. IMF, October 2014
IMF (2015a): Spillover Report. IMF
IMF (2015b): The Managing Director’s Global Policy Agenda. IMF
IMF (2016): Global Financial Stability Report. IMF, October
IMF (2017): Global Financial Stability Report. IMF, April
Isard, P. (2005): Globalization and the International Financial System. What’s Wrong and What Can Be Done. Cambridge University Press
Kenen, P. (1988): Managing Exchange Rates. London, Routledge
Kruger, A.O. (2012): Sustainability and Reform of the International Monetary System. In: Koeune, J.C. – Lamfalussy, A. (dir./eds.): In Search of a New World Monetary Order. P.I.E Peter Lang, Bruxelles, Bern, Berlin, Frankfurt am Main, New York, Oxford, Wien.
Krugman, P.R. (2007): Will There Be a Dollar Crisis? Economic Policy, 22(51), pp. 435–467. https://doi.org/10.1111/j.1468-0327.2007.00183.x
Kürthy, G. (2013): Globális egyensúlytalanságok stock-flow konzisztens modellben (Global imbalances in a stock-flow consistent model). In: Pénz, világpénz, adó, befektetések (Money, world currency, tax and investments), pp. 45–78..
Mussa, M. (2004): Exchange Rate Adjustments Needed to Reduce Global Payments Imbalances. In: Bergsten, C.F. – Williamson, J. (ed.): Dollar Adjustment: How Far? Against What?
Mundell, R. (1960): The Monetary Dynamics of International Adjustment Under Fixed and Flexible Exchange Rates. Quarterly Journal of Economics, 74, pp. 227–257. https://doi.org/10.2307/1884252
Mundell, R. (1961a): The International Disequilibrium System. Kyklos, 14, Fasc. 2, pp. 153–172.
Mundell, R. (1961b): Flexible Exchange Rates and Employment Policy. Canadian Journal of Economics and Political Science, 27, pp. 509–517. https://doi.org/10.2307/139437
Mundell, R. (1962): The Appropriate Use of Monetary and Fiscal Policy for Internal and External Stability. IMF Staff Papers, 12, pp. 70–79.
Saccomanni, F. (2012): How to Deal with a Global Triffin Dilemma. In: Koeune, J.C. – Lamfalussy, A. (dir./eds.): In Search of a New World Monetary Order. P.I.E Peter Lang. Bruxelles, Bern, Berlin, Frankfurt am Main, New York, Oxford, Wien
Taylor, J.B. (2007): Housing and Monetary Policy. In: Housing, Housing Finance, and Monetary Policy, Proceedings of the Federal Reserve Bank of Kansas City Symposium, Jackson Hole. WY. September, pp. 463–476. https://doi.org/10.3386/w13682
Thomas, C.P. – Marquez, J. – Fahle, S. (2008): Measuring U.S. International Relative Prices: A WARP View of the World. FRB International Finance Discussion Paper, No. 917 (Washington: Board of Governors of the Federal Reserve System)
Tobin, J. (1987): Agenda for International Coordination of Macroeconomic Policies. In: Paul A. Volcker et al. (eds.): International Monetary Cooperation: Essays in Honor of Henry C. Wallich, Essays in International Finance, No. 169. Princeton, NJ: Princeton University, International Finance Section, Department of Economics, pp. 61–69.