The terms of the debate: what's democracy got to do with it?

The terms of the debate: what's democracy got to do with it?

Global financial architecture: past, present and challenges ahead

This paper reviews the functions of an international financial architecture before summarizing and evaluating the main institutions of the four historical financial architectures since the mid 19 th century - namely : the classical gold standard (~1870 to 1914), the interwar period of constant revision and drift (1919-1939), the Bretton Woods system (1944~1971), and the post Bretton Woods system (~1973-present). The paper then explores the implications of three secular trends in the international political economy for understanding the performance of past and potential future international financial architectures. The important trends identified are:

  • technological advancement
  • declining United States hegemony
  • the spread of mass democracy

Finally the paper summarizes the ideas and interests behind four dominant contemporary perspectives on global financial reform.

Key observations include the following

  • In terms of the perceptions of contemporary political leaders, the gold standard apparently performed the best of the four international financial architectures, closely followed by the postwar Bretton Woods system
  • while the current architecture does not approach the disaster of the interwar years, in the perception of many opinion leaders, its functioning is increasingly dysfunctional
  • the reasons for current inadequacies are as much political as economic and technical
    • first, the current global financial architecture is predicated on hegemonic management, yet the US is an inevitably declining superpower
    • second, the spread of democratization to the developing world has inspired electorates everywhere to demand for themselves the so-called "compromise of embedded liberalism" (international economic integration coupled with protection of the domestic welfare state) that the Bretton Woods system ensured for the industrial democracies

  • So long as these contradictions remain unresolved, the risk of international financial crisis remains high

[adapted from author]