THE THREAT to financial stability from rising global capital flows could see regulators call for a new “rules-based system of global economic management”, according to papers released this morning by the Bank of England.
The Bank’s latest financial stability paper explores a “fundamental overhaul of the International Monetary and Financial System (IMFS)”, including the possibility of “hard incentives such as tariffs or capital controls”.
The research says that existing international government efforts to co-ordinate financial interventions – such as the G20’s Framework for Strong, Sustainable and Balanced Growth – are welcome, but may not be sufficient.
“The effectiveness of the G20 Framework remains to be seen,” the report says. “In the absence of a formal mechanism to force countries to internalise the externalities created by their policies, there is no guarantee that the process will deliver to its potential.”
A separate report, also released by the Bank this morning, estimates that global capital flows will increase considerably over the coming 40 years, bolstered by greater involvement in the global financial system by emerging markets.
By 2050, more than 40 per cent of all external assets will be held by the BRICs nations (Brazil, Russia, India, China), the study predicts. Currently these states hold 10 per cent.