Edited by Anthony Payne and Nicola Phillips
Chapter 6: The International Monetary Fund and the governance of international surveillance
'Financial crisis: a hardy perennial': this is not just the title of the introductory chapter of Robert Aliber and Charles Kindleberger's Manias, Panic and Crashes (2011), but also an eloquent reminder of one of the distinct features of financial markets, namely, their inherently unstable nature (Minsky 1986). As the global financial crisis of the late 2000s vividly reminded us, during the upward trend of the business cycle, markets are prone to euphoric behaviour that fuels asset and property bubbles. The latter burst as soon as the business cycle deteriorates to the point where debts exceed what borrowers can pay off from their incoming revenues. Recognising the perennial nature of financial instability, domestic political systems have over time developed several governance arrangements that are meant to circumscribe the effects of financial instability. These arrangements include prudential regulatory regimes, financial safety nets, and legal and accounting procedures. Similar efforts have been undertaken at the global level, where several governance arrangements exist which aim at minimising the likelihood of crisis and ensuring that those crises which do occur do not become systemic. These arrangements, which include both formal institutions and informal social practices, span those designed to prevent the eruption of crises - including surveillance mechanisms, prudential rules and procedures for regulatory cooperation and harmonisation - and those mainly designed to manage crises once they occur, such as the provisions that govern the functioning of the global financial safety net.
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