Dialectic tensions in the financial markets: a longitudinal study of pre- and post-crisis regulatory technology

This article presents the findings from a longitudinal research study on regulatory technology in the UK financial services industry. The financial crisis with serious corporate and mutual fund scandals raised the profile of compliance as governmental bodies, institutional and private investors introduced a ‘tsunami’ of financial regulations. Adopting a multi-level analysis, this study examines how regulatory technology was used by financial firms to meet their compliance obligations, pre- and post-crisis. Empirical data collected over 12 years examine the deployment of an investment management system in eight financial firms. Interviews with public regulatory bodies, financial institutions and technology providers reveal a culture of compliance with increased transparency, surveillance and accountability. Findings show that dialectic tensions arise as the pursuit of transparency, surveillance and accountability in compliance mandates is simultaneously rationalized, facilitated and obscured by regulatory technology. Responding to these challenges, regulatory bodies continue to impose revised compliance mandates on financial firms to force them to adapt their financial technologies in an ever-changing multi-jurisdictional regulatory landscape

The World Trade Organization and financial stability: the balance between liberalisation and regulation in the GATs

The WTO General Agreement on Trade in Services and its Annex on Financial Services provide the international legal framework for the regulation of cross-border trade in financial services. This paper analyses some of the main provisions of the GATS and the Annex on Financial Services to determine its impact on domestic financial regulation and whether the GATS framework can achieve its objectives of liberalising international trade in financial services while allowing states to maintain adequate domestic regulatory institutions. The paper argues that the GATS provides a flexible framework for states to negotiate liberalisation commitments while allowing sufficient domestic regulatory authority to achieve financial stability objectives. The extent to which states can depart from their GATS obligations to achieve regulatory objectives has become the source of academic debate and policy interest. Although the WTO has played little or no role in the financial regulation debate, the GATS contains certain disciplines that could potentially have significant implications for limiting regulatory discretion over financial markets. The paper suggests that the Doha Development Agenda should address some of these issues as they relate to the regulation of cross-border trade in financial services. The role of the WTO in this area raises important issues regarding the institutional design of financial regulation and related issues of global financial governance

Financial Globalization and Economic Development: Toward an Institutional Foundation

On the promise of enormous benefits from financial openness, many developing countries have embraced financial globalization by adopting internal and external financial liberalization. Yet, despite the rhetoric of its proponents, there is little evidence of enhanced development finance or any concomitant improvement in economic development. We critically examine the mainstream theoretical rationale for financial globalization and liberalization as well as their explanations of the widespread financial instability and crises that have been associated with financial openness. The paper also draws on broader theoretical traditions to explain the ubiquity of recent financial crises. Pointing to an alternative more dynamic analysis of the symbiotic relationships between finance and economic development, we propose an institutional-centric approach that forms a basis for understanding the transformation required for financial development. For development to occur, financial flows need to feed into real sector circuits to enhance expansion and accumulation, whilst national flows need to tap into international flows to complement the speed and capacity of the domestic flows.Developing Countries; Development; Finance; Financial Liberalization

EIB Working Paper 2022/11 - A structural analysis of foreign exchange markets in sub-Saharan Africa

"Many countries in Sub-Saharan Africa have liberalised their foreign exchange markets and capital accounts, and have moved to more flexible exchange rates, in recent decades. In this context, the interaction between non-resident investors and export structures centred on primary commodities create a risk of destabilising exchange rate dynamics and further complications for macroeconomic management. This paper presents detailed insights into the micro-characteristics of several African Lower and Lower-Middle Income Countries' foreign exchange markets and the implications of these characteristics for macroeconomic management. It draws on interviews with foreign exchange experts in central banks, banks, non-bank financial institutions, and research institutions in Ghana, Kenya, Malawi, Sierra Leone, Uganda, and Zambia, as well as the City of London. The results show that whilst most of these countries have functioning foreign exchange interbank markets, these markets are often characterised by low, volatile and “lumpy” liquidity. These liquidity dynamics and uncertainty about future foreign exchange flows can lead to foreign exchange hoarding by market participants, further depriving the market of liquidity. Those with access to foreign exchange liquidity can gain significant market power and the potential to affect price dynamics, which has meant that central banks in these countries have remained key agents in foreign exchange markets, to manage scarce and volatile liquidity patterns. Overall, the results show the difficulties of moving towards floating exchange rates, for African countries characterised by concentrated export structures, low trust in their currencies, and shallow domestic financial markets.

Rethinking International Subsidy Rules. Bertelsmann Working Paper 28/02/2020

Geo-economic tensions and global collective action problems call for international cooperation to revise and de-velop rules to guide both the use of domestic subsidies and responses by governments to cross-border competition spillover effects. Current WTO rules that divide all subsidies into either prohibited or actionable cate-gories are no longer fit for purpose. Piecemeal efforts in preferential trade agreements and bi- or trilateral configurations offer a basis on which to build, but are too narrow in scope and focus. Addressing the spillover ef-fects of subsidies could start with launching a work program at the 12th Ministerial Conference of the WTO to mobilize an epistemic community concerned with subsidy policies, tasked with building a more solid evidence base on the magnitude, purpose and effects of subsidy policies

Responding to the Global Financial and Economic Crisis: Meeting the Challenges in Asia

Based on a review of international and regional responses to the global financial and economic crisis and its implications for finance in Asia, Douglas Arner and Lotte Schou-Zibell draw lessons for Asian financial systems with regard to the scope of regulation; financial standards; supervision, regulation, and infrastructure; financial crises resolution; financial sector development; and strengthened regional financial architecture. They conclude with a discussion of challenges and policy options.Global financial crisis; Group of 20; systemic risk; financial sector development

Currency Undervaluation and Sovereign Wealth Funds: A New Role for the World Trade Organization

Two aspects of global imbalances—undervalued exchange rates and sovereign wealth funds (SWFs)—require a multilateral response. For reasons of inadequate leverage and eroding legitimacy, the International Monetary Fund (IMF) has not been effective in dealing with undervalued exchange rates. We propose new rules in the World Trade Organization (WTO) to discipline cases of significant undervaluation that are clearly attributable to government action. The rationale for WTO involvement is that there are large trade consequences of undervalued exchange rates, which act as both import tariffs and export subsidies, and that the WTO's enforcement mechanism is credible and effective. The WTO would not be involved in exchange rate management, and our proposals do not entail the WTO displacing the IMF: Rather, they would harness the comparative advantage of the two institutions, with the IMF providing the essential technical expertise in the WTO enforcement process. On SWFs, there is a bargain to be struck between countries with SWFs, which want secure and liberal access for their capital, and capital-importing countries that have concerns about the objectives and operations of SWFs. The WTO is the natural place to strike this bargain. Its services agreement, the General Agreement on Trade in Services (GATS), already covers investments by SWFs, and other agreements offer a precedent for designing disciplines for SWFs. Placing exchange rates and SWFs on the trade negotiating agenda may help revive the Doha Round by rekindling the interest of a wide variety of groups, many of whom are currently disengaged from the round.exchange rates, undervaluation, sovereign wealth funds, World Trade Organization, International Monetary Fund

Policy instruments in the Common Agricultural Policy

Policy changes in the Common Agricultural Policy (CAP) can be explained in terms of the exhaustion and long-term contradictions of policy instruments. Changes in policy instruments have reoriented the policy without any change in formal Treaty goals. The social and economic efficacy of instruments in terms of evidence-based policy analysis was a key factor in whether they were delegitimized. The original policy instruments were generally dysfunctional, but reframing the policy in terms of a multifunctionality paradigm permitted the development of more efficacious instruments. A dynamic interaction takes place between the instruments and policy informed by the predominant discourses