Abstract

other participants at the conference for comments; the usual disclaimers apply. The global economy has undergone a quantum leap in the degree of integration of international financial markets since the early 1970s. 1 In large measure, this shift was the product of deliberate policy changes, such as the elimination of capital controls and the deregulation of domestic financial markets. In addition, dramatic improvements in international communications and information technology have contributed to the reduction of “natural” barriers to international financial transactions, as well as to the reduction of barriers to foreign direct investment and merchandise trade. International financial liberalization was accompanied by the abandonment of the Bretton Woods system of adjustable exchange rate pegs and the shift to floating exchange rates among the major currencies or regional currency blocs. Financial liberalization also followed upon an earlier (but still ongoing) process of multilateral trade liberalization, originally through the General Agreement on Trade and Tariffs (GATT) in the 1940s and later through the formation of the World Trade Organization (WTO) in 1994. Virtually all mainstream international economists have supported trade liberalization; the vast majority (but with somewhat more dissent 2) has favored the shift to open capital markets

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