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All Fall Down

Debt, Deregulation and Financial Crises

Jane D’Arista

All Fall Down traces the ways in which changes in financial structure and regulation eroded monetary control and led to historically high levels of debt relative to GDP in both developed and emerging economies. Rising stocks of debt drove the global financial system into crisis in 2008 when households, businesses, financial institutions and the public sector in some countries strained to generate sufficient income for debt service. The stagnation and fall in asset prices that followed began the process of unwinding that led to a run on the financial sector by the financial sector.
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Chapter 30: Restructuring flows of private international investment into emerging and developing economies

Jane D’Arista

Extract

The establishment of a closed-end investment fund under the Bretton Woods umbrella would provide a less volatile and more effective channel for longer-term investment in emerging and developing economies than the current channels for private cross-border flows. The investment fund would issue its own liabilities in various national currencies and sell its shares to private institutional investors including pension funds in emerging as well as developed economies. Shares in the fund would also provide assets for the investment of international reserves with a multilateral guaranty by the fund backed by its Bretton Woods member countries. This channel for reserve investment would redirect export surpluses back into the countries that own them rather than into the financial markets of strong-currency countries.

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