DP16375 The Global Capital Market Reconsidered

Author(s): Maurice Obstfeld
Publication Date: July 2021
Keyword(s): embedded liberalism, Financial Stability, Global capital market, Globalization, multilateralism
JEL(s): E52, F02, F21, F30, F65, O19
Programme Areas: Financial Economics, Economic History, International Macroeconomics and Finance
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16375

While the globalization of production has been a prominent target of anti-globalization backlash, globalized finance has seemed to be much less in the public bull's-eye. The blueprint for the postwar international economy agreed at Bretton Woods in 1944 envisioned nothing like today's extensive and fluid global capital market. The demise of the 1946-1973 fixed exchange rate system, however, also brought a progressive dismantling of barriers to international financial flows motivated by special-interest politics, national economic competition, and ideology â?? alongside the benign desire for a more efficient international allocation of capital. Unfortunately, free cross-border financial capital mobility can compromise governments' capacities to attain domestic economic and social goals in several ways. This essay links the dynamics of financial liberalization to the Teflon-like resilience of finance to backlash so far, and suggests that stronger backlash could emerge if national governments fail to enhance multilateral cooperation to manage the financial commons.