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The International Monetary System Is More Unfit than Ever

After World War II, the world was promised a neutral international monetary system secured by a stable reserve currency issued by a global hegemon. But, with the US dollar being weaponized through sanctions against Russia and others, it is clear that the current system is far from neutral – or sustainable.

HONG KONG – After the 2008 global financial crisis, the world seemed ready to undertake meaningful reform of the international monetary system. But the promised structural changes never happened. And the recent spring meetings of the International Monetary Fund and the World Bank indicated that the current bout of global economic upheaval will similarly fail to spur transformation.

When the 2008 crisis rocked the global financial system, policymakers took radical action to stabilize it. Beyond government bailouts of distressed banks in the United States, the epicenter of the crisis, liquidity was expanded substantially through large-scale quantitative easing and foreign-currency swaps by central banks. The international monetary system’s legitimacy was bolstered by the expansion of decision-making from the G7 to the G20.

The obvious next step was regulatory reform, aimed at preventing future crises. To this end, more power was delegated to the Financial Stability Board, an international body focused on identifying and promoting strong regulatory, supervisory, and other financial-sector policies. The FSB pushed, for example, for higher capital and liquidity requirements for banks and limits on total leverage ratios.

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