Abstract

After a critical examination of the law and economics approach, the author explains that the recent proliferation of exchange-rate and interest-rate derivatives is due to the legal structure of the (post-Bretton Woods) monetary system which reserves a minimal role to public international law and privileges the private management of financial risks through the market mechanism. Although financial derivatives allow market actors to deal with the volatility which characterises international monetary relations in the absence of public guarantees, they involve a serious "systemic" risk of financial collapse, notably for developing countries. The measures introduced to address the risk by the IMF, Basle Committee on Banking Supervision, IOSCO, etc. under the leadership of the G-7, appear insufficient and geared to a vicious cycle of further instability. The author suggests structural reforms favouring international organization and cooperation as the only effective safeguard of stability and justice in international monetary relations

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