2 The international Monetary System Since 1972: Structural Change and Financial Innovation


THE PERIOD SINCE THE DEMISE OF THE BRETTON WOODS SYSTEM in the early 1970s has been one of structural change, market adaptation, and unprecedented financial innovation in the international financial system. The structure, operation, and institutions of the international system have evolved in a largely unplanned manner and without a clearly defined and agreed official framework—the latter being represented by governments in industrial countries, aid agencies, and multilateral development and financial institutions. Given this lack of structure, the evolution of the international financial system responded to significant changes in the economic and financial environment, and new objectives and behavior patterns of private institutions. In particular, the balance of the roles of the official and private sectors has altered substantially. This has meant, most especially, changes in balance of payments financing arrangements, but also in exchange rate behavior, the provision of international liquidity, and the essentially demand-determined course of international reserves.