2 - Progress towards greater international financial stability

Summary

Introduction

The decade of the 1990s saw a series of international financial crises on a scale and frequency unprecedented in the post-war period. The economic costs were high, spillover effects were widespread and the political and social consequences were severe. Not surprisingly, calls for the reform of the international financial architecture mounted.

Since 1998 there has been a plethora of international conferences devoted to this general theme. To those who expected them to result in a new ‘system’, comparable in its coherence and comprehensiveness to the Bretton Woods arrangements, the outcome of these deliberations is no doubt a disappointment.

But this would be to set the wrong standard. There is no brand new ‘system’ waiting to be discovered. What has been achieved (inter alia through programmes such as the one sponsored by the ESRC), however, is a better understanding of the strengths and weaknesses of current arrangements. From this flows an agenda of incremental reforms that, if carefully pursued, should result in a stronger and more efficient international monetary system.

There is no realistic alternative to an economic system based on decentralised market forces. This has been virtually universally accepted at the national level since the collapse of centrally planned economic systems in the late 1980s. And it applies equally at the international level. When governments attempt to control decisions about the allocation of real resources, they typically introduce rigidities and inefficiencies that outweigh any benefits stemming from the pursuit of social objectives in economic decisions.