INT’L FINANCIAL SYSTEM LAW CLASS TWO INTERNATIONAL FINANCIAL SYSTEM PLAYERS & ISSUES Prof. David K. Linnan PHBK UGM –USC-UI-UNDIP-USU Univ. of South Carolina Joint Videoconferenced Class School of Law August 27, 2002

SYSTEM PLAYERS & ISSUES The Lawyers’ View Int’l financial standard setting (regulatory) Periodic crisis-systemic risk fire brigade The Economists’ View Changing nature of markets, geographically & type (regulatory) Coordination of policy problem (fiscal & monetary) Changes since original Bretton Woods system

SYSTEM PLAYERS & ISSUES International Financial Institutions or IFIs International Monetary Fund (IMF, 1944) World Bank or International Bank for Reconstruction & Development (IBRD, 1944) Bank for International Settlements (BIS, 1930) Regional development banks (ADB 1966, etc.)

SYSTEM PLAYERS & ISSUES Other Int’l Institutions of Interest Organization for Economic Cooperation & Development (OECD, 1962) World Trade Organization (WTO 1995)

SYSTEM PLAYERS & ISSUES Other Int’l Groupings of Interest G (US, Japan, Germany, France, UK, Italy & Canada, now plus Russia G-8) heads of state annual meetings G (G-7 plus Netherlands, Belgium & Sweden, now plus Switzerland G-11) more technical, rich countries for borrowings G (post Asian Financial Crisis temp. working group examining financial stability in G-7 plus 15 major developing countries) G (G-22 replacement, with inst. rep. too like IMF/World Bank APEC 1989

SYSTEM PLAYERS & ISSUES Differences IFIs versus Int’l Groupings Technical difference that IFIs are normally creatures of treaty and autonomous int’l law subjects Practical difference that Int’l Grouping are usually just collections of major states meeting periodically to discuss current problems Legal insight how soft law is formed/hard law may emerge given players’ nature

SYSTEM PLAYERS & ISSUES Hybrids technically oriented next level down, for example Financial Action Task Force or FATF 1989 (for money-laundering, in OECD) Basel Committee on Banking Standards 1974 (for banking regulation, in BIS) Int’l Organization of Securities Commissions or IOSCO 1983 (for securities regulation)

SYSTEM PLAYERS & ISSUES Private Sector Industry Associations, for example Int’l Swaps and Derivatives Assn (ISDA 198?) create standards through pattern documentation such as master agreements and are based in financial centers (London, New York, etc.)

SYSTEM PLAYERS & ISSUES Bretton Woods System in Historical Perspective Concept at end WWII that war had resulted from economic troubles of 1930s, so 1944 creation ofIMF & World Bank ITO (Havana Charter) mooted but failed in adoption until 1995 WTO with interim 1948 GATT UN Charter (San Francisco meeting 1945) itself contemplates back to 1943 Atlantic Alliance “peace & prosperity”

SYSTEM PLAYERS & ISSUES Conditions in 1940s for IMF & World Bank Fixed exchange rates between currencies, gold convertibility for hard currencies IMF essentially a regulatory & lending institution to maintain currency rates World Bank created to rebuild Europe, but displaced by Marshall Plan while quickly moving into development lending for newly independent countries like India (1947)

SYSTEM PLAYERS & ISSUES Current shape of institutions and environment? Market conditions? Corporate finance explosion of instruments, etc.? Exchange rate structures? National account pressures? Private versus state involvement in markets?

SYSTEM PLAYERS & ISSUES How should/must/have already institutions/law changed to accommodate new conditions? Next two meetings economist will present background for slightly more detail on technical linkages for understanding legal issues