Chapter 16: The governance of the international financial system
16. The governance of the international ﬁnancial system Lorenzo Bini Smaghi* INTRODUCTION The issue of governance is increasingly being raised in economic life, especially when major failures occur in the functioning of markets and institutions. As far as the international ﬁnancial system is concerned, the Asian crisis of the second half of the 1990s was one of those cases which led to a reassessment, in particular with respect to the Bretton Woods institutions. The Cologne G7 Summit (G7 1999) contained some suggestions with respect to improving the governance of the international ﬁnancial institutions (IFIs). In particular, the governing body of the IMF was strengthened and the Group of 20 was created, to enlarge the sphere of consensus building between industrial and emerging market countries. The Financial Stability Forum, an emanation of the G7, was also created to oversee the work of the various groupings in charge of monitoring the stability of ﬁnancial markets. These developments have not stopped the critics of the current system of governance. The meetings of the IFIs since 2000 have given rise to various demonstrations, and the intensity has been attenuated recently only due to the emotions post September 11. Criticisms come from all parts, starting from the academic world (even when there is close involvement with the working of the institutions, as in the case of Joseph Stiglitz), nongovernmental organizations, but also the political world. In the United States, for instance, the IFIs are under serious scrutiny by Congress. The refusal by the US administration...
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