CHAPTER FIVE - REFORMING THE INTERNATIONAL MONETARY AND FINANCIAL SYSTEM:
TOWARDS STABILITY AND THE GLOBAL GOOD

1. RESPONDING TO THE NEW CHALLENGES OF GLOBALIZED FINANCIAL AND CURRENCY MARKETS

In many ways, the emergence of a vast market-oriented system of globalized finance represents an impressive achievement. Market disciplines - which have increasingly replaced the rigidities of capital controls - while they may seem erratic in the short

At the same time, this picture of flexible and rapidly-growing capital markets, combined with a necessary pragmatism in public finances, is not without some large troubling challenges to the stability of a market-led international monetary and financial

While systemic disruption was avoided, there have been many close calls and many tragedies for individuals, companies and countries in a setting in which many observers have a nagging sense of unease that all is not well and that the system is simply too

In that regard, it is argued that concerted official involvement has been needed to help maintain this system, and that it will be required on an even larger scale in the future to prevent large-scale risks to the integrity of the system as a whole. Agree

We begin, therefore, more with unsettling questions than comforting assumptions. If, to adapt the popular saying, money makes the world economy go round, is that world of global money and finance now spinning unpredictably, and dangerously beyond the cont

The Committee's preliminary exploration of these issues does not presume to come to any definitive answers. Indeed, despite headlines indicating heightened concern within the "G-3" over currency stabilization issues (as a result of a steeply falling U.S. other areas - such as the effects of speculative currency movements on long-term trade and investment relationships 45 ; the explosive growth and increasing complexity of "derivatives" markets (which one analyst describes as guaranteeing "there will be more spectacular losses" 46 ); and the still elusive role of major central banks and the Bank for International Settlements (BIS) - we realize that much further investigation is required in order to reach firm conclusions.

Such reservations notwithstanding, the Committee shares the concerns reflected by witnesses (and shared by the Government in its February foreign policy statement 47 )