Global Financial and Monetary Stability: a Public Good in Search of a Governance Framework
Drawing from the literature on global public goods, we examine the adequacy of the US financial and monetary system as a global public good in relation to emerging markets and low-income economies. We analyze the negative externalities caused by crises in the financial system and the possibility of adopting a Pigouvian-type tax with implications for frontier and emerging market economies. We examine the institutional framework needed for a truly global public goods version of the international financial and monetary system, reflecting on the global governance of such a system and on the tools needed for inclusive and enhanced global collaboration and coordination.
“The US government has a technology, called a printing press, that allows it to produce as many US dollars as it wishes at essentially no cost.”Ben S. Bernanke, November 2002The global financial system today is undisputedly interconnected, while its governance remains largely fragmented and uncoordinated, placing a heavy burden on emerging market and low-income economies. Gone are the days when there were discussions of decoupling and when actions in one part of the world had no effect on the others. The Great Financial Crisis (GFC) showed that while low-income and emerging economies may not have been as connected financially to the global economy, the transmission mechanisms of financial crises through the real sector economy remained important. In the 15 years since the GFC, capital markets of the emerging market economies (EMEs) and…