The impact of the liberalization of international financial markets on the scale of cross-border capital flows has become an increasingly familiar tale. Yet the extraordinary growth in international capital flows makes it a tale worth retelling. This growth in capital flows is the product of the most important systemic transformation of the world economy since the establishment of the new world order at the end of World War II. Its current and potential impact on the organization and operation of developed and developing economies demands detailed evaluation. Indeed, it is the key to the world’s economic future.
In 1973, daily foreign exchange trading around the world ranged from between $10 billion to $20 billion per day. But on January 1, 1974, the United States abolished all restrictions on international capital movements, following the same move by Canada, Germany, and Switzerland during 1973. Britain scrapped all controls in 1979, Japan in 1980, France and Italy in 1990, and Spain and Portugal in 1992.
Following the abolition of controls, the volume of international capital flows began to grow exponentially. During the 1970s, foreign exchange trading led the way. By 1980, according to the Bank for International Settlements (BIS, 1993), foreign exchange trading had reached a daily average of $80 billion, and the ratio of foreign exchange trading to world