International Financial Architecture: Have we

A financial crisis is a learning experience. Traditionally, each new episode has revealed new sources of vulnerability particularly in the sphere of domestic policies. In more recent years cracks have also appeared in both domestic financial architecture and international financial markets, extending the debate on international financial architecture (IFA) in the process. Our role is to attempt to extract lessons from such crises in order to put the necessary safeguards and systems into place. However, such measures cannot act as a guarantee that a new crisis will not manifest itself in some new form. As my previous speaker pointed out, although we now know that macro-stability is not enough, there was a time when this was widely believed to be a panacea to a crisis. Subsequent crises have revealed the problems of contagion and herding and now also micro-factors such as the health of the balance sheets of the domestic financial system. Today, I am going to argue that although our understanding is limited to working out ex ante the new sources of crisis, we have not dealt adequately with the issues in international financial architecture emerging out of the previous crises. The proposals on which some progress has been made following the East Asian crisis have tended to focus more on making it possible for the market to reward good behaviour and penalise bad. The post-crisis emphasis has been on strengthenin