Proposals For Reforming The International Financial Architecture Ibf

Proposals for Reforming the International Financial Architecture-: International economic policymakers are currently confronted with two urgent problems. One is to contain and resolve the macroeconomic and financial crises.the other is to reform the institutions,structures and policies,the international financial architecture, through which crises are predicted, prevented and dispatched. There is no shortage of proposals for reforming the international financial architecture.The UK government proposes merging the IMF the world bank and the bank for international settlements to create a single super regulator of financial markets. The French propose vesting additional decision making power in the interim committee of finance ministers, which oversees the operation of the IMF, the goal of enchancing Accountability, allowing the institution to respond more quickly to crises, and not incidentally giving Europe a counterweight to the disproportionate influence enjoyed by the US treasury as a result of its physical and intellectual proximity to the fund. The German government has mocted the idea of target zones for exchange rates to prevent currencies from misbehaving. The Canadian Government proposes providing for an IMF sanctioned pause or payments standstill to be invoked in the event of financial difficulties. George Soros proposes an international debt insurance corporation. Henry Kaufman, proposes an international credit agency, Jeffrey Garten an international central bank, Jeffrey Sachs an international bankruptcy court. The one thing that these proposals have in common is their impractically. They all assume a degree of intellectual consensus and political will that simply does not exist.

Any tenable proposal for reforming the international financial architecture must start from the following assumptions: 1. Liberalised financial markets have compelling benefits. 2. International Financial liberalization and growing international capital flows are largely inevitable and irreversible. Domestic and International financial liberalization go hand in hand. 3. Notwithstanding the manifest benefits of financial liberalization capital markets are characterized by information asymmetries that can give rise to overshooting, sharp corrections and in the extreme financial crises. 4. This instability provides a compelling argument for erecting a financial safety net despite the moral hazard that may result. 5. Information and transaction costs can prevent decentralized markets from quickly and efficiently resolving financial problems. 6.

Economic policy is framed in a politicized environment. It cannot be assumed that regulators and other economic policymakers will carry out their tasks without allowing themselves to be influenced by political consideration.

New International Financial Architecture One of the essential prerequisite for globalization is a free flow of capital in addition to the current account flows. The

current account transactions comprise all trade flows.miscellaneous remittances and the annual accruals on the investments in the form of interest, dividend and profits. The capital flows mainly comprise loans, advances borrowings, bank accounts, equity routes in the form of shares, debt route in the form of bonds. Since in the current account transactions the flow of funds mainly is backed up by various trade related transactions to a reasonable extent the end use be verified accurately since the use of these funds represents the investments, borrowings and lendings. One of the relevant examples is external commercial borrowing permitted in India. It may be stated here that the new international financial architecture has grown larger in dimension to take care of not only the current account transaction but also the capital transaction. The flow of capital funds could be sensitive and these flows are more vulnerable and critical as compared to current account flows. It is therefore, necessary for the member countries to monitor such flows to ensure that the same are used for legitimate and developmental activities for global development. Each country has to put in place monitoring system for such flows. It is pertinent to mention here that one of the major of Asian currencies crisis is that capital flows in the country were not monitored effectively for productive purposes.