Table of Contents

The Future of the International Monetary System

The Future of the International Monetary System

Edited by Marc Uzan

Is the international financial architecture debate over? Not according to leading experts gathered together in this impressive volume who try to identify the key trends that will fashion the international financial system in the years ahead. As history has shown, the evolution of the international monetary system is a slow process. However, the authors argue that we may be entering a new era in which a combination of factors will have lasting consequences on the functioning of the international monetary system and the future role of the IMF.

Chapter 9: Capital flows and capital controls

Harold James

Subjects: economics and finance, international economics, money and banking


9. Capital flows and capital controls Harold James No debate in international economics has been as prolonged, sustained and intense, or – for that matter – as inconclusive, as that over the benefit or harm of capital flows and therefore implicitly about the desirability of capital controls. This chapter discusses some of the circumstances why individual countries and the system as a whole may prove more restrictive of capital flows in the future than was the case in the 1990s: a discussion which is actually in large part quite independent of the debate about the economic repercussions of capital movements. There were, historically, two periods in which the discussions about capital movements and capital controls were especially intense: in the 1930s and 1940s, in the wake of the Great Depression; and again in the 1990s. In the first, capital flows were widely seen as the major culprit for the Great Depression. An influential account by Ragnar Nurkse explained that irrational movements had been prompted by the instability of the international monetary system, and of an inadequate mechanism for setting exchange rates. The argument expounded by Nurkse relies heavily on the idea that hot money flows, which had in particular been a concomitant of political crises in the 1930s and which were thus thought to undermine democracy and international peace as well as international economic relations, were triggered primarily by expectations of exchange rate movements. J.M. Keynes’s great plea of the 1930s was to ‘let finance be national’. An alternative tradition,...

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