Limitations to States’ Sovereignty and Dispute Settlement
Elgar International Economic Law series
Chapter 1: International Monetary Stability and Global Financial Stability as Global Public Goods and the Role of International Economic Law
INTRODUCTION Since the breakdown of the Bretton Woods system (the post-war international monetary regime aimed at establishing international monetary stability and centred on the gold exchange standard and fixed exchange rates), the world economy has undergone dramatic changes. It has become more interconnected and integrated, with a high degree of trade and financial openness and with the volume (and volatility) of cross-border capital flows rising dramatically to exceed the size of world trade.1 New technologies and plummeting communication costs have greatly contributed to the opening of national markets. Similarly, cross-border transactions in bonds and equities have increased, as well as the daily turnover on the foreign exchange market. Some emerging economies have built foreign exchange reserves well beyond prudential levels, becoming important players in several key asset markets and active managers of their exchange rates. However, despite the potential benefits of financial liberalization and globalization, the combination of deregulation and fast-paced financial innovation has led to recurring episodes of crisis, which shook many developing and emerging economies, without sparing industrialized countries. The Latin American debt crisis marked the beginning of the 1980s; in October 1987 – on Black Monday – Hong Kong, Europe, and the United States were hit by a major stock market crash; at the end of the 1990s the so-called East Asian Tigers were battered by a deep financial crisis; Russia experienced a currency crisis in 1998; and the beginning of the 21st 1 Trade openness is defined as the ratio of exports and imports to GDP, financial openness...
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