More checks and balances

Today’s major financial issues have far-reaching implications traversing well beyond any national boundary. These issues are global in scope and thus require global solutions. As the global financial market faces unprecedented challenges on the one hand and rapidly decreasing resources on the other, greater cooperation is needed among states, private sectors and civil society groups around the world in order to work together through various institutional arrangements. These efforts must also be supported by the adoption and enforcement of binding rules at all levels of financial activities.

The concept of global governance – systems with global effect created and regulated by multilevel private and public actors in variegated institutional arrangements – thus becomes increasingly relevant as the globalisation of the financial market takes place. And CAG’s Global Governance project is looking into this very issue.

Many have argued in the recent years that the entire system for global financial regulation is in serious need of a major update. The question is, how. Kenneth Rogoff, Professor of Economics and Public Policy at Harvard and formerly chief economist at the IMF ponders whether more regulated financial markets with stricter rules and enforcements to curb what he calls “financial triumphalism”, would do the trick. He points out that historically the eras of heavy financial regulation tend to have significantly fewer financial crises than lightly regulated free-wheeling eras. He writes: “No one is suggesting that we go back to the ‘financial repression’ of the 1950’s…financial innovation ought to be allowed to flourish but not without better checks and balances. Otherwise, we will be forever trapped in a framework where taxpayers are forced to bailout banks in bad times, while wealthy shareholders reap huge profits in good times.” Read Kenneth Rogoff's article titled "The End of Financial Triumphalism" in PROJECT SYNDICATE. [Sung]

Professor Rogoff will deliever a talk titled "What do we know about exchange rates" at the LKYSPP on 18 August 2008. See details.