Saving the System

The international financial system required frequent firefighting from the 1980s onward. In reaction to the global firestorm that flared up in the summer of 2007, a raft of measures was taken, although many of them still need further elaboration. While new legislation and rule-making on both sides of the Atlantic have fallen short of what many observers regard as necessary for a more permanent effect on the system, the changes agreed upon have materially reduced the risk of another major financial crisis in coming years. But the global financial system represents only part of the international financial and monetary architecture. The financial part can be compared to the superstructure of a building, including the roof, walls, floors, and wiring, all of which can cause serious problems when damaged. By contrast, the international monetary system can be compared to the fundament of the building, which, if it crumbles, requires a complete restructuring. During the financial turmoil of recent decades the monetary system has remained largely unscathed. There is no reason for complacency, however, as vulnerabilities and imbalances have gradually increased. Were the system to come under severe pressure, drastic measures would be needed to save it from collapsing. Some preventive action has been taken in recent years in the scope of IMF and G20 deliberations, but more needs to be done to further reduce the possibility of a breakdown which would surely have grave consequences for global welfare.