International Financial Governance under Stress: Global Structures versus National Imperatives

By Geoffrey R.D Underhill; Xiaoke Zhang | Go to book overview

16

The G-7 and architecture debates:
norms, authority and global
financial governance

ANDREW BAKER

Since the 1980s, a regular round of meetings between finance ministers and central bank governors from the G-7 countries has been one of the principal mechanisms for formulating international financial and monetary policy.1 This chapter traces the contribution of the G-7 finance ministers and central bank governors to debates on the design of the international financial system, and draws conclusions on the collective role these agencies play in global financial governance. Such an exercise takes us right to the very heart of questions concerning the exercise of power and authority in the international system. Over the last decade, G-7 finance ministries and central banks have shared and refined ideas and drawn collective lessons against a backdrop of widespread financial turmoil that has posed questions about the sustainability of the current system and the authority of the state.2

It is argued in this chapter that the G-7 finance ministries and central banks have developed a narrow, technical belief system. This belief system has not only constrained the finance ministries’ and central banks’ ability to respond to financial crises, but it has also generated a series of very modest incremental proposals for reform of the global financial system. Rather than challenging the finance ministries’ and central banks’ belief system, the principal impact of the financial crises of 1997–8 and the subsequent response has been to reinforce, refine, deepen and extend the belief system into new countries and new policy areas. The likely net result of these activities is further capital account liberalisation. A further consequence of recent reforms is the increasing prominence of a pattern of three-dimensional diplomacy, in which the structural dynamic of the market dominates, but according to which also long-term financial stability ultimately fails to be guaranteed.

The chapter is divided into four sections. The first section illustrates how the G-7 finance ministries and central banks have progressively cultivated and refined a shared belief system on matters concerning macroeconomic policy, exchange rates and the general design of the international financial system over the last decade. The second section argues that this belief system has

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