Currencies and International Finance: Issues

For a period of about 40 years, roughly from 1935 until 1973, the international financial system remained remarkably stable. There were occasional crises, but these arose mainly from financial laxity in public sector management in individual countries. The International Monetary Fund (IMF), which was set-up in the aftermath of the second World War, successfully managed these occasional crises. During this period, exchange rates were pegged in the Bretton Woods system, there were controls over international capital flows, and constraints on domestic credit.

Since the collapse of the Bretton Woods system in early 1973, the extension of free trade has led to the progressive removal of capital controls, domestic credit constraints, and pegged exchanges rates. Although the period since the mid-1970s has seen a significant rise in world income growth, it has also witnessed a series of international financial crises.

The International Financial Stability Programme examines issues associated with these international financial crises. The IFS Programme – jointly sponsored by the Centre for Economic Performance and the Financial Markets Group – examines many aspects of these crises, and asks how the international financial institutions (the so-called international financial architecture) could be reformed to reduce the number of such crises, and lessen their economic impact both on the crisis countries and on other countries.