Operation of the International Monetary and Financial System – Structural Tensions of a "Non-system"

Over the past few decades, the international monetary and financial system has been a subject of constant economic debate. More recently, topics such as the activity of global financial institutions and corporations, developments in money and capital flows, international regulation and the role of central banks were thrust into the limelight by the outbreak of the financial crisis in 2007 and its culmination into a global crisis in 2008. The depth and impact of the crisis highlighted the deficiencies of the system, prompting participants to seek solutions that may facilitate sustainable, inflation-free and balanced economic growth by eliminating or at least mitigating the negative externalities of the system. With that in mind, one of the objectives of this study is to provide a brief presentation of the conceptual framework and main structural components of the existing system. This is also necessitated by the considerable changes that have taken place relative to the Bretton Woods system. The second objective of the study is to present a comprehensive overview of the complicated operation of the system by outlining the role and the interaction between the key elements of the system without intending to offer an in-depth examination of the details. We found that, owing to its significant deficiencies, the international monetary and financial system fails to meet the criteria of a well-functioning system. It is not suitable to keep exchange rate and capital flow developments in balance on a global scale, to ensure an optimal level of international liquidity, and to harmonise the relationship between international (economic and monetary policy) cooperation, spillovers and diverging volatility levels.