A Response to Rolf H Weber by Douglas W Arner and Ross P Buckley
As a general matter, we agree with Professor Weber’s comments, especially in relation to development and climate change. While we have not in this article focused on developmental aspects of the global financial architecture, in fact, we both view this as the fundamental goal. Development however is not a simple objective and no single set of solutions to the development challenge has emerged. In the global economic architecture today, developmental issues are addressed through the Millennium Development Goals (‘MDGs’), a huge range of multilateral, domestic and non-governmental organizations from the World Bank to UNCTAD to national aid agencies, the Grameen Bank and beyond, and most recently the G-20 Seoul Development Consensus, reflecting the experiences of successful developing countries and the report of the Commission on Growth.
In looking at related issues, we believe the MDGs and Seoul Development Consensus reflect an appropriate way forward for coordinating development across the global economic architecture. Nonetheless, we believe that the International Monetary Fund’s (‘IMF’) role in development should be limited, with its focus on financial matters and crisis resolution. Further, we argue that a financial transactions tax could have important benefits in supporting development as well as reducing financial crises and enhancing mechanisms available for addressing them. At the same time, climate change and related issues such as food security need to be given a much more central role. However, the mechanisms in this context are likely to be different yet again from those adopted in other contexts discussed in the article.
In the context of hardening international financial law, this is a topic which we have addressed separately. In this context, we see a range of possible options from the soft law arrangements preceding the Asian Financial Crisis of 1997, to the hardened soft law arrangements of the Financial Stability Forum/Financial Sector Assessment Program (‘FSAP’) that followed and then to the G-20/Financial Stability Board (‘FSB’)/FSAP arrangements in the wake of the Global Financial Crisis and beyond.
In respect to the ‘beyond’ category, one option would be to incorporate regulation into the WTO framework, accessing its hard law negotiating and dispute resolution framework. However, financial development and stability is a different animal from trade in goods and we would argue that the mindset and legal framework in this context is inappropriate.
A second option would be a global financial regulator — either a new organization or one formed through giving the IMF, Bank for International Settlements (‘BIS’) or FSB appropriate legal authority. This has a certain attraction and would mirror domestic arrangements (a central bank/lender of last resort, financial regulator and financial institution resolution regime). However, politically, we do not think the world is yet ready for this step — perhaps the last crisis simply was not big enough! The European Union is pursuing this approach to some extent through the European Central Bank and European regulatory authorities. Even in that context, though, sovereignty continues to pose serious obstacles.
A third approach would be to follow the approach in the context of investment: an international dispute resolution authority. Once again, however, the contexts are sufficiently different that this may not actually address the core issues of externalities embedded in finance.
As a result, while hardening in some context may be most appropriate (perhaps through the FSB or BIS), we do not yet see this as a viable option politically but one which does have much to recommend it.