Expanded coverage: Volume provides perspective on legal issues, broader financial sector developments

Current Developments in Monetary and Financial Law, Volume I, prepared in the IMF’s Legal Department, is the most recent addition to its series of books, previously entitled Current Legal Issues Affecting Central Banks. The new series title reflects an expansion of the topics under review. As part of the IMF’s ongoing efforts to increase transparency, the book explains how the organization makes decisions. It analyzes international financial crises, financial sector developments, governance of central and commercial banks, and payment systems developments, as well as criminal activities that affect the financial world. The book—a valuable annotated reference source—presents international perspectives from almost fifty authors, including officials of international financial organizations, central bankers, attorneys, academicians, and economists.

Abstract

Current Developments in Monetary and Financial Law, Volume I, prepared in the IMF’s Legal Department, is the most recent addition to its series of books, previously entitled Current Legal Issues Affecting Central Banks. The new series title reflects an expansion of the topics under review. As part of the IMF’s ongoing efforts to increase transparency, the book explains how the organization makes decisions. It analyzes international financial crises, financial sector developments, governance of central and commercial banks, and payment systems developments, as well as criminal activities that affect the financial world. The book—a valuable annotated reference source—presents international perspectives from almost fifty authors, including officials of international financial organizations, central bankers, attorneys, academicians, and economists.

Current Developments in Monetary and Financial Law, Volume I, prepared in the IMF’s Legal Department, is the most recent addition to its series of books, previously entitled Current Legal Issues Affecting Central Banks. The new series title reflects an expansion of the topics under review. As part of the IMF’s ongoing efforts to increase transparency, the book explains how the organization makes decisions. It analyzes international financial crises, financial sector developments, governance of central and commercial banks, and payment systems developments, as well as criminal activities that affect the financial world. The book—a valuable annotated reference source—presents international perspectives from almost fifty authors, including officials of international financial organizations, central bankers, attorneys, academicians, and economists.

Decision making and IMF operations

The volume opens with an analysis of how legal decisions are made in the IMF. The IMF’s General Counsel, Francois Gianviti, describes the IMF’s legal system and explains that the IMF’s Articles of Agreement—an international treaty comparable to a national constitution—form its basis. He then analyzes the IMF’s structure by discussing the selection, powers, and status of the three decision-making entities—the Board of Governors, the Executive Board, and the Managing Director. Gianviti notes that, in contrast to a political organization like the United Nations, which operates on the “one country-one vote” principle, the IMF might be more accurately compared to a private corporation but with some features of an international agency.

IMF Assistant General Counsel Hector Elizalde provides another inside view of the IMF’s operations. He clarifies the status of countries that participate in the European Economic and Monetary Union with respect to IMF membership, quotas, and participation in the Board of Governors and the Executive Board.

Financial crises

Several authors provide insight into the response of international financial institutions to crises in Latin America and Asia. Claudio Loser, Director of the IMF’s Western Hemisphere Department, analyzes the causes of Latin America’s 1980s debt crisis and the 1994-95 “tequila” crisis and draws lessons for governance, labor market reform, and human capital. He notes that the 1994-95 crisis was the first financial crisis to develop against the backdrop of truly global financial markets and that international financial support to Mexico in 1995 reached unprecedented levels.

In the context of crisis intervention, Charles Enoch, Assistant Director in the IMF’s Monetary and Exchange Affairs Department, asks “why give independence to central bankers if they have shown that they cannot use it?” He responds by explaining that, when a central bank’s framework is unable to change its management to deal with a crisis effectively, a currency board may be a viable alternative. He expands on the causes and consequences of establishing a currency board, the prerequisites for its establishment, and the circumstances in which such an arrangement is not appropriate.

Central banks—governance issues

Governance issues continue to be of vital concern in the commercial as well as the central banking world. The seminar on which Current Developments in Monetary and Financial Law was based attracted about forty central bank legal advisers from around the world. In this volume, authors examine systems set up to ensure accountability of central banks for monetary policy and for external review of their decisions.

Stephen Cecchetti, Director of Research for the Federal Reserve Bank of New York, discusses the system of accountability for the 85-year-old U.S. Federal Reserve System. This system, he explains, influences monetary policy by setting reserve requirements for banks, setting the lending rate and making loans to commercial banks, and buying and selling government-guaranteed instruments. Having raised some practical issues regarding central bank activities, Cecchetti analyzes why central banks should adopt and follow policy rules rather than use pure discretion in responding to external events. His analysis discusses accountability and how independence is assessed under the Federal Reserve System.

Geoffrey Miller, a professor at New York University Law School, explains a basic framework for external review of central bank decisions and then applies it under the criteria of timing and stringency. He discusses exceptions to the U.S. rule for judicial review after administrative procedures are final, and sets out a menu of stringency options ranging from no review at all to plenary review with no deference to the initial decision maker.

Copies of Current Developments in Monetary and Financial Law, volume I (644 pages), are available for $65 each from IMF Publication Services. See ordering information on page 363.