Monetary Law

Author: Kanad Bagchi

Required knowledge: Link

Learning objectives: Understanding XY.

A. Introduction edit

Even though money has been a crucial instrument of political and social control, the international legal framework around it still remains largely understudied. International monetary law (IML) occupies much less attention within debates on international economic law, as against international trade and investment, for instance. This has meant that questions concerning monetary autonomy, sovereignty, and the way international law deals with monetary conflicts and determines the distribution of rights and obligations remain largely ignored in legal scholarship. What is also missing is a systematic engagement with how money sustains not only the infrastructure of world capitalist expansion, but is also an important instrument of hierarchy, subordination, and imperial expropriation.

In this chapter, I attempt to open up a conversation about the manifold transformations that the field has witnessed in the last decades and how the study of monetary law accordingly needs to be reoriented. I focus on the structural changes in IML and the kind of questions which have become relevant today. In addition, I place IML in conversation with the politics of money and hierarchy in the international monetary system (IMS). This overview is necessarily going to be partial, hence every effort will be made to reference liberally, especially for some of us who might want to take the conversation further.

B. History(s) of International Monetary Law edit

Most accounts of international monetary law trace the origins of the field to the Bretton Woods Conference in 1945 and to the establishment of the International Monetary Fund (IMF/Fund). To be sure, Bretton Woods was a landmark event. It was the first time that a multilateral instrument for monetary coordination was established. It was also the first time that some semblance of participation of the ‘Third World’ in monetary affairs was envisioned, albeit in a very limited way.[1] Against the backdrop of the inter-war years that witnessed several episodes of monetary and financial instability accompanied by discriminatory currency practices, the intention at Bretton Woods was to put in place an international organization with legal powers to enforce a code of conduct for monetary affairs.[2] Thus, the IMF was given a permanent mandate for international monetary cooperation and far-reaching powers to impose sanctions.[3] Scholars thereafter heralded the dawn of a new system, “a new kind of highly legalized multilateral monetary and financial order”,[4] and the birth of a “public international law of money.”[5]

This highly abstract and sanitized version of the origins of international monetary law erases the role that money and international law played in the longue durée of capitalism and imperialism. From the powerful Economic and Financial Organization (EFO) of the League of Nations (League) to the erstwhile Gold Standard adopted among imperial powers in the 19th century, money represented a crucial terrain for the civilizing mission as well as resistance to it. Control over money in the colonies was both a means to limit sovereignty, but also to conditionally grant it upon satisfactory transformation.[6] Colonial currency systems were systematically placed subordinate to currency systems in the metropoles enabling the exploitation and extraction of wealth from the former.[7] Moreover, the League was singularly responsible for the unequal economic integration of the mandated territories into the circuits of global capitalist accumulation. This was done through monetary reforms, austerity induced lending and the propagation of ideas regarding stable money and central bank independence – ideas we take for granted today.[8] Much of what the IMF came to embody at Bretton Woods was an extension of the League’s powers of monetary and financial oversight – what we broadly refer to as monetary surveillance in contemporary IMF law. In other words, Bretton Woods did not signify a distinct break from the past. To the contrary, as TWAIL scholars have highlighted, the institutional structures of the IMF reflected deep continuities of the imperial order through other legal means.[9] In other words, money then as it today, operates as a crucial medium of exclusion and inclusion between the core and the periphery.[10]

The task then is to decenter the conventional story of BWS as birth of public international law of money, a story that effaces the history of money as an exploitative tool. Accounts of monetary law need to reckon with its colonial origins and illustrate the continuing forms of subordination and asymmetry embedded within the international monetary system – a point that we will come back to in the conclusion of this chapter.

C. The Scope of International Monetary Law edit

The scope and subject matter of international monetary law continues to be a matter of debate. The term ‘international monetary system’ was first introduced in the IMF Agreement.[11] Yet, it was left undefined. This meant that much of what this ‘system’ would comprise and consequently the legal framework around it would be elaborated through institutional practise and adaptation. This gave international monetary institutions, including the IMF, a tremendous leeway in shaping the contours of the discipline and in expanding its own mandate for the regulation of money. To put it differently, the study of international monetary law must pay close attention to internal legal rules, procedural adaptation and soft legal frameworks underpinning the law of monetary institutions.[12]

It was only in 2012 that the IMF would make the first attempt at defining the international monetary system, as well as the law governing it.[13] In it, the IMF defined international monetary law as the collection of rules that govern the balance-of-payments relations among states. These include, as the IMF notes, rules on (1) exchange relations, (2) international payments (3) cross-border capital flows and (4) monetary reserve management – all of which determine a particular state’s monetary relationship with the rest of the world. In monetary law, the balance-of-payments relationship is the governing anchor and the institutional link among states. This is because national economies do not exist in isolation, but are intimately tied through a vast network of closely interconnected balance sheets and currency relations. Balance-of-payments however, is a zero-sum game in the sense that one country’s balance-of-payments deficit is another country’s balance-of-payments surplus. Much of the politics over money revolves around balance-of-payments adjustment and who bears the burden of such adjustment.[14]

As one may notice, the IMF defines the IMS and the rules governing it from the perspective of a state’s external monetary relations. Exchange rates, capital flows, international payments, and monetary reserve management all pertain to how states interact with the currency systems of other states. Yet, several aspects of a state’s internal monetary affairs are also in significant ways determined by the strictures of international monetary law and institutions. Domestic central bank regulations, monetary policy frameworks, standards regarding central bank independence and transparency, as well as monetary crisis response, are conditioned by rules and ideational paradigms of international institutions tasked with governing money.[15] In other words, international monetary law determines and shapes the contours of domestic monetary autonomy. Consequently, monetary sovereignty and what that implies is a contested terrain in which states and domestic monetary authorities continuously negotiate the bounds of autonomy and control over money.[16] The scope of international monetary law, then, is neither fixed nor set in stone, but continues to evolve in response to changing law of monetary institutions.

D. Expanding Institutions edit

This raises an important question. Which institutions are relevant for the study of international monetary law?

I. International Monetary Fund edit

For the most part, international monetary law has had an outsized focus on the IMF.[17] This is, of course, for good reasons. The Bretton Woods System put the IMF at the centre of international monetary relations. It was tasked with enforcing the par-value system of fixed but adjustable exchange rates – a purpose which it lost in 1971 when the US under President Nixon refused convertibility of the dollar in exchange for gold – an event that sent shockwaves across the international monetary system.[18] Indeed, since then, the IMF evolved in multiple ways and its role within the IMS has changed significantly.[19] The Second Amendment to the IMF agreement in 1979 granted it a new mandate for ‘firm surveillance’ and changed fundamentally the character of the IMS.[20] Currencies that were tied to each other through an interlocking system of par values came to be free floating in the international market.[21] The Fund has since then not only revamped its conditionality framework, but also expanded its surveillance infrastructure – a point which we will come back to in just a bit.

II. Bank for International Settlements edit

The IMF is neither the first nor the only institution tasked with monetary cooperation. We must go further back to the Bank for International Settlements (BIS) established in 1929 with a specific mandate “to promote the cooperation of central banks.”[22] The uniqueness of the BIS lies in the fact that its membership comprises not states, but 63 central banks across the world. From an institution envisioned with a mandate[23] to determine and settle financial reparations stemming from World War I,[24] the BIS has evolved into a credible forum for central bank cooperation – hosting a number of influential committees dedicated towards promoting financial and monetary stability.[25] The BIS has played an important role in setting monetary standards, creating coherent frameworks of knowledge as well as synthesizing monetary policy approaches.[26] It has been the frontrunner in promoting global financial stability, macroprudential policies and capital flow regulation.[27] Even though these standards lack legal enforcement they come with tremendous authority and are backed by market and peer mechanisms of enforcement.[28] Its role in the international monetary system has been variously described as an anchor and think tank for monetary policy coordination.[29] At least since the demise of the BWS of exchange rates in the 1970s, the BIS has “emerged as [a] competing source of international monetary authority.”[30]

III. Informalization of International Monetary Law and Cooperation edit

The fall of Bretton Woods also resulted in the informalization of international monetary law and cooperation. This shift was transformational in the way it ushered a whole range of new actors in the monetary field. Already in the 1960, an influential group of ten (G10) industrial nations[31] agreed to establish the General Agreements to Borrow (GAB) to supplement the resources of the IMF.[32] GAB resulted in a system of a “double lock”[33] on the resources of the IMF, such that decisions on conditional lending by the IMF would now require also the concurrence of the G10. Thereafter, informality would become a regular feature of international monetary law. The 1970s and the 1980s saw the rise of the G5 and the G7 as the principal forums for international monetary cooperation, much of which was transpiring outside of the IMF.[34] As one commentator put it, “[T]he 1970s was a low point for the IMF as the official hub of international monetary coordination.”[35] The developing world too resorted to informality and minilateralism[36] by establishing the G24, with the mandate to coordinate joint actions, especially on international monetary and financial affairs.[37]

With the Global Financial Crisis in 2008, another informal body, the G20, would acquire a lead role in the global governance of financial and monetary matters. The G20 was not simply a political forum comprising heads of states, but also a technical forum, which brought together finance ministers and central bankers. It gathered a greater legitimacy than the G5/G7 given the broader representation of the several developing countries in the G20.[38] The G20 has engaged with several issues, such as the governance reform of the IMF, augmenting global monetary liquidity through additional SDR allocation, inducing balance-of-payments adjustments, and legitimizing the use of capital controls to arrest the volatility of international capital flows. Alongside the IMF, the G20 is regarded as an important “hub of global economic governance.”[39]

IV. Decentralization in International Monetary Law edit

The GFC also prompted a decentralization in international monetary law, characterised by the creation of a number of regional monetary institutions in the Global South.[40] Especially in Asia, three new institutions, namely, Chiang Mai Initiative Multilateralization (CMIM),[41] BRICS Contingent Reserve Arrangement (CRA),[42] and Eurasian Fund for Stabilization and Development (EFSD)[43] were established in quick succession following the GFC. A common theme underlying the establishment of these arrangements was a sense of deep dissatisfaction with the nature and exclusivity of international monetary governance and the need for “self-insurance” against short-term liquidity shortages.[44] All of them can be characterised as what are called ‘reserve pooling or liquidity sharing arrangements’, i.e., they entail a set of commitments undertaken by national central banks to provide short-term financing to member states facing balance-of-payment difficulties.[45]

There is quite some dynamism in how these institutions have been established and in the scope of their mandates. While the EFSD and CRA were created through treaty mechanisms in 2009 and 2014 respectively,[46] the CMIM was created through a ‘single multilateral swap arrangement’ among its member states in 2010.[47] With a total size of swap commitments at $240 billion, a permanent secretariat, and an in-house monetary surveillance unit, the ASEAN+3 Macroeconomic Research Office (AMRO), CMIM is the largest and most sophisticated regional rescue fund outside Europe. Both the CRA and EFSD entail smaller contributions,[48] yet, their appeal lies in the flexibility of their design. Unlike the CMIM, the CRA and EFSD lack a permanent secretariat. And neither of them possesses an independent legal personality – they are “multilateral agreement(s) without a funding institution.”[49] The legal mandates of these institutions also vary considerably. While the CMIM and BRICS CRA are primarily geared towards forestalling short term balance-of-payments pressures and promoting mutual support,[50] the EFSD is tasked to balance BOP concerns simultaneously with an attending focus on growth and development. This makes the EFSD a small but unique institution in the landscape of international monetary law.

The emergence of regional monetary institutions has been heralded as a new era of ‘South-South’ monetary coordination.[51] Its distinctiveness lies in the fact that, unlike in the past, these newer mechanisms of coordination are being systematically institutionalized through an elaborate system of rules for monitoring, surveillance and dissemination of monetary policy standards. Much of legal scholarship has hardly paid any attention to monetary institutions outside the ‘West’.[52] This has left a significant gap in the literature and in our understanding of how monetary law and coordination might look differently in other institutional spaces. What this brief survey illustrates is that the IMF is “not the only organization that has a place in the system.”[53] We have shifting institutional configurations characterised by informality and regional monetary integration, and newer mechanisms through which the old multilateral order is being contested.[54]

E. Expanding Interactions edit

The emerging institutional landscape is thus highly segmented, scattered, and multi-layered.[55] In contrast to the top-down centralized system of international monetary coordination, which the BWS put in place, what we have today is a “decentralized, heterogeneous, pluripolar” global order for monetary coordination.[56] In this setting, multiple institutions interact and compete for authority and also legitimacy. In other words, there is an evolving pattern of interaction among a range of different monetary institutions that govern the field, and it is these interactions which produce new sources of authority accompanied by a unique set of interventions.

For instance, G20 operates in a close relationship with and within an institutional space occupied by formal institutions, most notably the IMF. The IMF has gradually emerged as the G20’s closest ally.[57] It formed the backbone of the G20 Mutual Assessment Procedure (MAP) - a mechanism of ‘peer review’ and collective policy action for balance-of-payment adjustments in member countries.[58] Roped in by the G20 as its ‘technical advisor’, the IMF was tasked to evaluate key imbalances, how members' policies fit together, and whether they can achieve the G20's goals collectively.[59] Conversely, for the IMF, assistance to G20 members brought “additional insights” into their policy plans and provided a separate channel to “reinforce the traction of its bilateral and multilateral surveillance of G20 members.”[60]

Similarly, the IMF interacts very closely with regional monetary institutions. For instance, the constitutive documents of both CMIM and BRICS CRA provide for a substantive link with the IMF. Only a certain percentage (40% under the CMIM and 30% under CRA) of funds are readily available to member states without the involvement of the IMF. For any amount exceeding this limit, borrowing member states are required to enter into an IMF supported surveillance and lending programme.[61] The central rationale for this linkage was so that liquidly arrangements under the CMIM and BRICS CRA go hand in hand with the IMF assistance. The EFSD too underscores the IMF to be a “key counterpart” in its own operations.[62] The IMF has welcomed the creation and strengthening of regional monetary and financial institutions, especially as a compliment to the IMF and towards “supporting” the international monetary system as a whole.[63] Recognizing this growing interaction, the G20 came up with principles for cooperation between the IMF and regional financing arrangements, which must “take account of region-specific circumstances and the characteristics of RFAs.”[64]

The crucial task of international monetary law scholarship, then, is to study how these interactions bring multiple institutions together, produce new sources of knowledge and effectuate different kinds of experimental interventions. Interestingly, we see both cooperation and contestation. The inflexibility of the IMF, its skewed system of quotas and voting and its coercive mechanism of enforcing conditionality were among the chief reasons for developing countries to go their own way. Moreover, some of these regional monetary institutions do not necessarily function within the paradigm of IMF orthodoxy. They have different mandates, different ways to measure compliance and sometimes radically opposing set of priorities. These institutions operate and are situated within a specific cultural, geographical and economic space which allows them to build closer and more lasting contact with domestic monetary authorities. This is the single most important reason as to why regional monetary institutions enjoy a high sense of “ownership” from its member states.[65] An approach to monetary law that takes interactions seriously must be able to conceptualize the field in its varied manifestations and complexities, typified by a proliferation of institutions and legal frameworks.

F. Expanding Instruments edit

Conditional lending is an important function of international monetary institutions. Simply put, conditionality is the device by which monetary institutions lend financial resources on the satisfactory fulfilment of certain prescriptions by the receiving state, which is expected to solve its BOP crisis. For the IMF, the legal basis of conditionality is usually traced to Article V, section 3 (a) of the IMF agreement, which refers to “conditions governing use of the Fund's general resources” and calls upon the IMF to establish “adequate safeguard” for the use of its funds. The parameters for conditionality, its content and scope have, however, evolved through practise and internal law making.[66] Over the years, conditional lending has transformed into a mammoth exercise with several distinct regimes, facilities, adjustment programmes depending on the development parameters of the member in question and its capacity for repayment.[67] Conditional lending, especially its more structural kind, has faced tremendous criticism, and rightly so, as being “overly extensive, intrusive and deflationary” - often drawing the ire of governments and civil society organizations.[68] Conditionality has been associated with a “one size fits all” approach where standard prescriptions for deregulation, greater capital account openness, labour market reforms, deficit reduction and large-scale austerity programmes, are prescribed across the board. This has occasioned a substantial overhaul of the IMF conditionality lending, including a clear preference for ex-ante as opposed to ex-post conditionality, as well as quicker disbursement.[69]

The resistance against IMF conditionality and later World Bank structural adjustment programmes ushered in a change of strategy within these institutions. In the last decades and at least since the fall of the BWS in 1971, a big part of the function of monetary institutions has focused on monetary surveillance. The Second Amendment to the IMF Agreement in 1979 and revised Art IV reoriented the objectives of the IMF towards prompting “a stable system of exchange rates.” For this purpose, the Fund was also granted a new mandate to exercise “firm surveillance” over exchange rate policies of its members, as well as broad powers to “oversee” the international monetary system.[70] Most importantly, new Art. IV did not define what surveillance is[71] and left it entirely to the Fund to adopt “specific principles” for the guidance of its members regarding its powers of monetary surveillance. A number of internal board decisions and guidance notes thereafter, have clarified the scope, nature as well as the legal mandate of the Fund with respect to monetary surveillance.[72]

Monetary surveillance typically entails both bilateral consultations and multilateral reporting. Bilateral surveillance consists of country visits, which are then followed up with the publication of a Consultation Report.[73] These reports contain analysis and recommendations on a range of structural problems associated with a member state’s financial and monetary infrastructure, including financial soundness, monetary stability and exchange rate misalignment. Multilateral surveillance, on the other hand, entails information gathering and dissemination, analysis of macroeconomic spillovers, monitoring of cross-country linkages, standard setting and knowledge production on key monetary policy frameworks.[74]

The objective of monetary surveillance is twofold. On the one hand, bilateral surveillance provides an opportunity for “dialogue and persuasion” where international monetary institutions interact closely with domestic central banks and other monetary authorities of member states.[75] On the other hand, multilateral surveillance is geared towards cross-country references, ranking, standardizing and creating coherent cognitive frameworks around contested monetary issues. The recommendations, which are part of the multilateral and bilateral surveillance, are not legally binding. They are offered as advice in the form of best practices.[76] Yet, they carry tremendous weight and have visible impact as they engage processes of peer review, public scrutiny, and induce market pressure.[77] In other words, monetary surveillance operates at the interface of informal and formal law making. Through surveillance, monetary institutions do not seek to change legal relations directly, but indirectly shape preferences and background assumptions of the actors involved in the process. Surveillance is a typical example of the exercise of cognitive and communicative power, which builds on knowledge, expertise and information instruments that structure cognitive conditions.[78] The inherently evaluative character of surveillance also makes it a highly political instrument, through which certain forms of knowledge systems, standards and monetary practices are privileged over others.[79]

As opposed to the top-down coercive mechanism of conditionality, surveillance aims to convince and nudge domestic monetary authorities towards particular policies. International monetary institutions rely on their discursive powers rather than their purse strings to achieve their goals. To quote the IMF itself, in an interconnected globalized economy, monetary surveillance is a “core responsibility of the IMF.”[80] The latest IMF report is revelatory in this regard. In it, the Fund documents that conditional lending today comprises merely 15% of the share of total IMF activity. Surveillance, both bilateral and multilateral, on the other hand, comprises a total of 42% of the Fund’s regular work.[81] Similarly, even regional monetary institutions such as the BRICS CRA, the CMIM as well as the EFSD have developed elaborate mechanisms of monetary surveillance, allocating a significant proportion of their technical staff and material resources for that purpose.

To sum up, even while conditional lending is an important function of international monetary institutions, much of international monetary governance today transpires through the instrument of monetary surveillance. In an age where information and knowledge is power, the instrument of monetary surveillance is precisely the means through which deep political and social contestations about money are mediated through the law. Consequently, our focus must shift towards analyzing how the expanding legal framework around monetary surveillance makes international monetary institutions emerge not only repositories of material influence, but as norm diffusers, policy advisors and consensus builders.[82]

G. Contested Issues in International Monetary Law edit

As argued above, at the heart IML is the question of balance-of-payments. Balance-of-payments is in turn influenced by a number of different monetary related measures, including exchange rate manipulation, monetary spillovers, controls on international capital flows and the management of international liquidity. Even though each of these issues are governed by a broad set of parameters laid down within the rules of the IMF and other institutions, the legal framework is neither straightforward nor settled. These issues are also deeply political and have important effects not only on the global distribution of wealth and resources among states, but also for individuals and for domestic policy making.

I. Currency Manipulation and Exchange Rate Misalignment edit

The issue of currency manipulation, i.e., the practice of directly or indirectly tinkering with the value of a particular currency to gain a competitive trade advantage, has been a recurring concerning in IML.[83] The central provision that deals with the question of currency manipulation is Art IV:1 (iii) of the IMF agreement, which reads that member states ought to “…avoid manipulating exchange rates or the international monetary system in order to prevent effective balance of payments adjustment or to gain an unfair competitive advantage over other members…”. The IMF has the ultimate authority to find a country in violation of the above provision. Despite the clear nature of the obligation, the process of determining whether a country is, in fact, manipulating its exchange rate has been fraught with economic, legal and political hurdles. In economic theory, currency manipulation remains a contested concept, with no strict rules capable of determining a particular practice or set of practices as currency manipulation.[84] This allows a great deal of deference to be afforded to a country's interpretation.[85] Moreover, Art IV:1 (iii) requires the indication of a subjective intent (“in order to”) for the purposes of determining whether a particular action, even if considered as manipulation, actually falls foul of the provision. Consequently, the IMF has never found any member in violation, even though accusations of currency manipulation are rife in international monetary relations.[86] Many have thus questioned the effectiveness of IML, its lack of a clear set of rules and absence of a dispute settlement mechanism. Some have turned to trade rules in agitating matters relating to currency manipulation as akin to an import tariff and an export subsidy against the mandate of the WTO.[87]

II.Cross-Border Monetary Spillovers edit

Monetary spillovers refer to the phenomenon whereby monetary policy actions by one state have negative effects and consequences for monetary policy decisions on others.[88] While monetary spillovers is not a new problem, it came back into focus after the GFC when core economy central banks such as the U.S. Federal Reserve and the ECB experimented with a number of unconventional monetary policy measures (UMP).[89] UMP generated large scale financial and monetary stability implications for the developing world such as exchange rate volatility, asset price mismatches and currency appreciations across the developing world.[90] Monetary spillovers also negatively affect the pursuit of monetary autonomy in the periphery. Central banks in the latter are forced to respond to decisions taken elsewhere, steering them away from monetary policy which might be otherwise optimal for domestic circumstances. The regulatory framework for monetary spillovers remains dispersed and is hardly settled. The IMF’s multilateral surveillance infrastructure, the G20 MAP as well as the BIS’s standardization frameworks[91] form the core set of rules regulating monetary spillovers. Yet, they all suffer from a fundamental asymmetry. They fall short of explicitly requiring ‘source’ countries, i.e. those largely responsible for monetary spillovers in the first place, to adjust their monetary policy decisions.[92] Instead, the focus remains on structural adjustment in ‘receiving’ countries. As several commentators have highlighted, the international legal framework on monetary spillovers privileges the promotion of domestic stability, even if that might come at the cost of international stability.[93]

II.Cross Border Capital Flows edit

The movement of international capital has been a defining feature of twenty-first century globalization, far outpacing international trade in recent decades.[94] International capital, however, exhibits a dual quality. Even when it comes with several benefits, capital flows can also be accompanied by financial and monetary instability.[95] Several periods of financial crisis, in the past, attests to the inherently volatile and disruptive nature of capital flows.[96] Despite being allowed under the IMF Agreement, capital controls were shunned for the most part of 20th century, when a combination of neo-classical and monetarist economies ideas propagated freedom of capital as the cornerstone of growth and development.[97] International institutions like the IMF and OECD as well as the regime for international trade and investment pushed for capital liberalization, often with devastating consequences for the Global South.[98] The GFC witnessed a change in perspective.[99] A number of states and their central banks resorted to capital controls to protect financial and monetary stability.[100] Even the IMF was forced to advise several of its members to impose controls on both the inflow and outflow of capital.[101] As Grabel notes, controls which were “denigrated as a tool for the weak and misguided…have now been normalized as a tool of prudential financial management, even within the corridors of the IMF.”[102] Today, IMF law as illustrated in its 2012 Institutional View on the Liberalization and Management of Capital recognizes capital controls as a legitimate monetary policy tool, which can be used under certain circumstances, even pre-emptively.[103] Similarly, the OECD and a growing number of Free Trade Agreements as well as BITs allow for capital controls as part of BOP exceptions.[104] Yet, given that the regulation of capital flows remains fragmented across a range of institutional regimes, including monetary, trade and investment, conflicting obligations and overlapping mandates remain a concern.[105]

III. The Provision of International Liquidity and Monetary Reserves edit

States typically require access to international liquidity, i.e., the provision of monetary reserves to finance its balance-of-payments and intervene in foreign exchange market to stabilize its exchange rate. How states can access reserves and what indeed counts as reserves have been a source of much of contestation. The IMF sought to provide a solution to the problem of international liquidity by creating Special Drawing Rights (SDR) as a global reserve asset in 1969.[106] SDRs were to be assigned automatically to countries in proportion to their respective quotas and did not come with any strings attached. In fact, the intention was to promote SDR as the “principal reserve asset in the international monetary system”.[107] Yet, for the most part, the key role of the US dollar as the leading currency for international transactions and payments also made it the defacto reserve asset for the world.[108] This meant that the Federal Reserve, i.e. the only central bank with unlimited access to dollar liquidity, effectively became the international lender of last resort, sometimes even outpacing the Fund.[109] For the rest of the world, access to dollar liquidity depends on either the largesse of the Federal Reserve or tied to the coerciveness of IMF conditionality.[110] This makes the international monetary system and especially the provision of international liquidity highly asymmetric in that deficit countries are perennially forced to accumulate dollar reserves despite the costs associated with it.[111] International monetary law lacks a clear set of rules on the provision of international liquidity, consequently shifting the burden of adjustment to deficit countries alone.

H. Conclusion: Politics, Hierarchy and Subordination in International Monetary Law edit

The illustrated list of issues in IML reveals a number of elements about the international monetary system. First, that money is not a neutral instrument of economic policy, but a highly political one through which a range of contestations over key distribution and allocation of resources transpire.[112] The rules pertaining to international monetary cooperation reflect the underlying distribution of international monetary power and how the burdens and benefits of monetary adjustment are ultimately shared.[113] Much of the development of IML happened through a complex interaction of internal legal rules and informal instruments, rather than grand treaty amendments, reflecting the close interplay between law and politics, formality and informality.

Second, the international monetary system is an inherently hierarchical one. [114] In this, some currencies enjoy what is called “exorbitant privilege” i.e., the ability to act as a medium of exchange and store of value both domestically and internationally.[115] For instance, the US dollar, a domestic currency, is also the linchpin of the international monetary system, allowing the US economy to deflect and delay the cost of monetary adjustment onto others.[116] It also places the Federal Reserve at the apex of the global currency hierarchy, as it is the only central bank capable of issuing an unlimited supply of dollars to the international monetary system.

In other words, as one moves from the financial core to the periphery, neither monetary sovereignty nor monetary autonomy is necessarily guaranteed. Peripheral central banks are continually tied to monetary policy decisions of core central banks. This is visible not only regarding large scale monetary spillovers from the Federal Reserve and other core central banks to central banks in the periphery,[117] but also in the way that peripheral central banks are forced to accumulate international reserves primarily in US dollars (and to some extent in Euro) to ward off monetary and financial instability. The inability of peripheral currencies to act as either a medium of exchange or store of value internationally also forces the latter to borrow in currencies that are not their own, increasing the likelihood of balance-of-payments crisis. This is because monetary policy decisions in the financial core affect the value of foreign debt, most of which is denominated in core currencies, but held by peripheral economies.[118] In recent years, both the IMF and the World Bank have sounded the alarm over a mounting debt burden for countries which have a high exposure to debt denominated in a foreign currency.[119]

Many thus view international monetary and currency relations as a manifestation of imperial power in contemporary society.[120] Much like how colonial currency systems were systematically subordinated to currency systems in the metropole, the present monetary system creates and sustains bonds of subordination and dependency between the core and the periphery. This is the case not only for direct forms of subordination but also indirect forms of control through the provision of international liquidity and reserve accumulation.[121] In this, money operates as a ‘neo-colonial’ tool which binds the prospects for growth, economic development and social transformation of the periphery to the economic and political imperatives of the core.[122] Control over money, then, is a crucial element of economic self-determination.

The lasting legacy of Bretton Woods is that while the regulation of money was entrusted to an international organization, namely the IMF, a national currency came to acquire a central place in the international monetary system. International monetary law and especially the framework of the IMF does not fundamentally challenge this framework. Scholarship on international monetary law, then, must be able to uncover the deep structural continuities between old imperial formations and present-day economic governance.

Summary edit

  • Summary I
  • Summary II

Further Readings edit

  • Reading I
  • Reading II

Table of Contents edit

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Part I - History, Theory, and Methods

Part II - General International Law

Part III - Specialized Fields

Footnotes edit

  1. Eric Helleiner, Forgotten Foundations of Bretton Woods: International Development and the Making of the Postwar Order (Cornell University Press, 2016); Eric Helleiner (2015) ‘International Policy Coordination for Development: The Forgotten Legacy of Bretton Woods’ (UNCTAD discussion paper No. 221).
  2. Joseph Gold characterised the constitution of the IMF as a “radical idea” especially in terms of states devolving monetary powers to an international institution, an almost unthinkable event in the histpry of monetary affairs. Joseph Gold, ‘Continuity and Change in the International Monetary Fund’ in Legal and Institutional Aspects of the International Monetary System: Selected Essays (1984) 408; Similarly, reflecting on Bretton Woods, Jeffry Frieden notes “…there had never been an attempt to design the very structure of the international economy; indeed, it is unlikely that anybody had ever dreamed of trying such a thing. The stakes at Bretton Woods could not have been higher.” Frieden, Jeffry, ‘The Political Economy of the Bretton Woods Agreements’ in Naomi Lamoreaux and Ian Shapiro (eds.,) The Bretton Woods Agreements (Yale University Press, 2019). For a discussion of how the BWS was very different from the erstwhile Gold Standard see, Michael D. Bordo, ‘The Gold Standard: The Traditional Approach’ in Michael D. Bordo and Anna J. Schwartz (eds.,) A Retrospective on the Classical Gold Standard, 1821-1931 (University of Chicago Press 1984).
  3. IMF Articles of Agreement, art I (1) “To promote international monetary cooperation through a permanent institution”.
  4. Eric Helleiner (2019) ‘The Life and Times of Embedded Liberalism: Legacies and Innovations Since Bretton Woods 26 (6) Review of International Political Economy 1112-1135, 1119.
  5. Joseph Gold (1984) ‘Public International Law in the International Monetary System’ 38 Southwestern Law Journal 799-852.
  6. Allan E. S. Lumba, Monetary Authorities: Capitalism and Decolonization in the American Colonial Philippines (Duke University Press 2022).
  7. Wadan Narsey, British Imperialism and the Making of Colonial Currency Systems (Springer 2016).
  8. Louis W Pauly ‘The League of Nations and the Roots of Multilateral Oversight’ In Who Elected the Bankers? Surveillance and Control in the World Economy (Cornell University Press, 2018) 44-61; Patricia Clavin, Securing the World Economy: The Reinvention of the League of Nations, 1920-1946 (OUP 2013).
  9. Sundhya Pahuja (2000) ‘Technologies of Empire: IMF Conditionality and the Reinscription of the North/South Divide’ 13 (4) Leiden Journal of International Law 749-813; Antony Anghie (2000) ‘Time Present and Time Past: Globalization, International Financial Institutions, and the Third World’ 32 New York University Journal of International Law & Politics 243.
  10. In this chapter, the terms ‘core’ and ‘periphery’ is interchangeably used for ‘developed’ and ‘developing’ countries respectively. In the economic and monetary literature these are also referred to as ‘systemic’ and ‘non-systemic’ countries denoting the nature of their economic impact on the rest of the world. There is a longstanding literature that identifies ‘core’ financial economies as those whose currencies are at the top of the currency pyramid. These include, the economies of the US and the Eurozone. On the relationship between monetary core and periphery see Michael D. Bordo & Marc Flandreau (2001) ‘Core Periphery, Exchange Rate Regimes, and Globalization’ (NBER Working Paper 8584); Ilias Alami, Carolina Alves, Bruno Bonizzi, Annina Kaltenbrunner, Kai Koddenbrock, Ingrid Kvangraven & Jeff Powell (2022) ‘International Financial Subordination: A Critical Research Agenda’ Review of International Political Economy 1-27.
  11. See Article IV, Section 1 IMF Agreement.
  12. Joseph Gold (1983) ‘Strengthening the Soft International Law of Exchange Arrangements’ 77 (3) American Journal of International Law 443-489.
  13. See ‘Modernizing the Legal Framework for Surveillance – An Integrated Surveillance Decision’ (IMF 2012); Joseph Gold (1984) ‘Public International Law in the International Monetary System’ 38 SMU Law Review 799-852; Lucía Satragno, ‘Chapter 1: The International Monetary System in the Post-Crisis Era’ in Monetary Stability as a Common Concern in International Law: Policy Cooperation and Coordination of Central Banks (Brill 2022) 11.
  14. See Benjamin J. Cohen, ‘The Macro foundations of Monetary Power’ in David M. Andrews (eds.,) International Monetary Power (Cornell University Press 2006).
  15. Andreas Kern Bernhard, Reinsberg Matthias and Rau-Göhring (2019) ‘IMF Conditionality and Central Bank Independence’ 59 European Journal of Political Economy 212-229.
  16. Murau, S., & Van ’t Klooster, J. (2022). Rethinking Monetary Sovereignty: The Global Credit Money System and the State. Perspectives on Politics, 1-18; Claus D. Zimmermann, A Contemporary Concept of Monetary Sovereignty (OUP 2013).
  17. There has been a lot of commentary on the law of IMF. Some of the most prominent works on this are James M. Boughton, The IMF and the Silent Revolution: Global Finance and Development in the 1980s (IMF 2000); Some of the leading studies on the topic include, among others, Thomas Cottier, John H Jackson and Rosa M Lastra (eds), International Law in Financial Regulation and Monetary Affairs (OUP 2010); Mario Giovanoli and Diego Devos (eds), International Monetary and Financial Law (OUP 2010); Charles Proctor, Mann on the Legal Aspect of Money (7th Edition 2012); Rosa Lastra, International Financial and Monetary Law (OUP 2nd Edition 2015).
  18. This is popularly known as the ‘Nixon shock’ after the then President of the US Richard Nixon exited from the Bretton Woods System, leading to its demise. Michael D. Bordo (2017) ‘The Operation and Demise of the Bretton Woods System; 1958 to 1971’ (NBER Working Paper No. 23189).
  19. On the evolving role of the IMF see François.Gianviti (2001) ‘Evolving Role and Challenges for the International Monetary Fund’ 35 (4) The International Lawyer 1371–1403.
  20. Art. IV Section 3 IMF Agreement.
  21. Several influential scholars had already argued that the system was bound to fail. For instance, Robert Triffin argued that the Dollar based world economy is inherently prone to a crisis of confidence. See Robert Triffin, Gold and the Dollar Crisis (Yale University Press, 1960).
  22. Art. 3 Statutes of the Bank for International Settlements, 1930.
  23. The BIS was founded with the twin objectives of overseeing the war reparations of Germany and to promote the cooperation of central banks.
  24. Simmons, B 91993). “Why Innovate? Founding the Bank For international Settlements, 1929-30”, World Politics (Vol 45, No 3).
  25. Some of the most important committees at the BIS are (1) Basel Committee on Banking Supervision (2) Committee on the Global Financial System (3) Committee on Payments and Market Infrastructures and (4) Central Bank Governance Forum. For a full list see
  26. The BIS describes it work as follows “it ‘carries out research and analysis to contribute to the understanding of issues that are at the core of the central bank community’s work, to inform meetings of Governors and other central bank officials, and to provide analytical support to the activities of the various Basel-based” Bank for International Settlements, About BIS. Available at All of these are done through its massive Monetary and Economic Research Department which publishes reports, academic papers, working policy briefs and Annual Reports. See Bank for International Settlements, Annual Economic Reports. Available at; Bank for International Settlements, Quarterly Reviews. Available at
  27. Claudio Borio, Stijn Claessens, Piet Clement, Robert N. McCauley and Hyun Song Shin, Promoting Global Monetary and Financial Stability: The Bank for International Settlements after Bretton Woods, 1973–2020 (CUP 2020).
  28. Leonard Seabrooke (2006) ‘The Bank for International Settlements’ 11 (1) New Political Economy 141-149; Gianni Toniolo, Central Bank Cooperation at the Bank for International Settlements, 1930–1973 (CUP 2005).
  29. Carola Westermeier (2018) ‘The Bank of International Settlements as a Think Tank for Financial Policy-Making’ 37 (2) Policy and Society 170-187.
  30. Michael D. Bordo (2017) ‘The Operation and Demise of the Bretton Woods System: 1958 to 1971’ (NBER Working Paper No 23189) 8.
  31. The Countries which formed the G10 included: Belgium, Canada, France, Germany, Italy, the Netherlands, Sweden, Switzerland, the United Kingdom and the United States. Japan became the 11th member but the group was still known by the acronym G10.
  32. On GAB see Michael Ainley, ‘The General Agreements to Borrow’ (IMF Pamphlet Series No. 41) available at
  33. As cited in Rakesh Mohan and Muneesh Kapur (2015) ‘Emerging Powers and Global Governance: Whither the IMF?’ (IMF Working Paper WP/15/219) 41.
  34. Baker, A. (2006) The Group of Seven: Finance Ministers, Central Banks, and Global Financial Governance (Routledge).
  35. Michael D. Bordo (2021) ‘Monetary Policy Cooperation/Coordination and Global Financial Crises in Historical Perspective’ 32 Open Economics Review 587-611.
  36. On ‘minilateralism’ see, Orfeo Fioretos (2019) ‘Minilateralism and Informality in International Monetary Cooperation’ 26 (6) Review of International Political Economy 1136-1159.
  37. See James M. Boughton (2017) ‘Southern Accents: The Voice of Developing Countries in International Financial Governance’ (CIGI Paper No. 141).
  38. The G20 declared itself as the “premier forum” for economic coordination. See G20 Leaders Statement (Pittsburgh Summit 2009). Available at .
  39. Andrew Cooper (2010) ‘The G20 as an Improvised Crisis Committee and/or a Contested ‘Steering Committee’ for the World’ 86 (3) International Affairs 741–57.
  40. See William W Grimes (2006) ‘East Asian Financial Regionalism in Support of the Global Financial Architecture? The Political Economy of Regional Nesting’ 6 (3) Journal of East Asian Studies 353–80; William W Grimes (2015) ‘East Asian Financial Regionalism: Why Economic Enhancements Undermine Political Sustainability’ 21 (2) Contemporary Politics 145-160; José Antonio Ocampo and Daniel A Titelman. (2012) ‘Regional Monetary Cooperation in Latin America’ (ADBI Working Paper No. 373) 6.
  41. CMIM was created by ASEAN plus China, Japan and Korea in 2010. On the legal structure of CMIM see Sussangkarn, C. 2010 ‘The Chiang Mai Initiative Multilateralization: Origin, Development and Outlook’ (ADBI Working Paper No. 230).
  42. BRICS CRA was created by member states of Brazil, Russia, India, China and South Africa in 2014. Aike I. Würdemann (2018) ‘The BRICS Contingent Reserve Arrangement: A Subversive Power Against the IMF’s Conditionality?’ 19 (3) The Journal of World Investment & Trade 570-593.
  43. EFSD was established by the member states of Armenia, Belarus, Kazakhstan, Kyrgyzstan, Russia and Tajikistan.
  44. José Antonio Ocampo and Daniel A Titelman. (2012) ‘Regional Monetary Cooperation in Latin America’ (ADBI Working Paper No. 373) 6.
  45. Volz, Ulrich and Aldo Caliari, Regional and Global Liquidity Sharing Arrangements (Deutsches Institut für Entwicklungspolitik 2010).
  46. Treaty on the Establishment of the Anti-Crisis Fund of the Eurasian Economic Community 2009; Treaty for the Establishment of a BRICS Contingent Reserve Arrangement 2014.
  47. Sussangkarn, C. 2010 ‘The Chiang Mai Initiative Multilateralization: Origin, Development and Outlook’ (ADBI Working Paper No. 230).
  48. CRA has a total size of $100 billion. The EFSD has a total subscribed capital of $8.153 billion of which $3.059 billion is paid in.
  49. Aike I. Würdemann (2018) ‘The BRICS Contingent Reserve Arrangement: A Subversive Power Against the IMF’s Conditionality?’ 19 (3) The Journal of World Investment & Trade 570-593.
  50. Article 1 Treaty for the Establishment of a BRICS Contingent Reserve Arrangement 2014.
  51. Barbara Fritz and Laurissa Mühlich (2015) ‘Regional Monetary Cooperation in Emerging, Transition, and Developing Economies’ In: Hölscher J and Tomann H. (eds.,) Palgrave Dictionary of Emerging Markets and Transition Economics (Palgrave Macmillan, 2015).
  52. For some exceptions see Laurissa Mühlich and Barbara Fritz (2016) ‘Safety for whom? The Scattered Global Financial Safety Net and the Role of Regional Financial Arrangements’ (KFG Working Paper Series, No. 75); Pradumna B. Rana (2017) ‘The Evolving Multi-layered Global Safety Net: The Case of the Association of Southeast Asian Nations+3 Regional Financial Safety Net and the International Monetary Fund’ (ADBI Working Paper Series No. 733); Ilene Grabel ‘The Changing Institutional Landscape of Financial Governance and Developmental Finance in Emerging Market and Developing Economies’ in When Things Don't Fall Apart: Global Financial Governance and Developmental Finance in an Age of Productive Incoherence (MIT 2019); Ilene Grabel (2019) ‘Continuity, Discontinuity and Incoherence in the Bretton Woods Order: A Hirschmanian Reading’ 50 (1) Development and Change 46-71.
  53. Joseph Gold ‘Chapter 1: International Monetary System, International Monetary Fund and International Monetary Law’ 121-140, 140.
  54. Camila Villard Duran (2018) ‘Voice and Exit: How Emerging Powers are Promoting Institutional Changes in the International Monetary System’ 15 (1) Brazilian Journal of International Law 71-89; Aike I. Würdemann (2018) ‘The BRICS Contingent Reserve Arrangement: A Subversive Power Against the IMF’s Conditionality?’ 19 (3) The Journal of World Investment & Trade 570-593; Morse, J.C., Keohane, R.O (2014) ‘Contested Multilateralism’ 9 Review of International Organization 385–412.
  55. Laurissa Mühlich and Barbara Fritz (2016) ‘Safety for whom? The Scattered Global Financial Safety Net and the Role of Regional Financial Arrangements’ (KFG Working Paper Series No. 75); Pradumna B. Rana (2017) ‘The Evolving Multi-layered Global Safety Net: The Case of the Association of Southeast Asian Nations+3 Regional Financial Safety Net and the International Monetary Fund’ (ADBI Working Paper Series No. 733) available at publications/evolving-multilayered-global-financial-safety-net
  56. Ilene Grabel (2019) ‘Continuity, Discontinuity and Incoherence in the Bretton Woods Order: A Hirschmanian Reading’ 50 (1) Development and Change 46-71, 49.
  57. In 2009, the G20 ‘called upon’ the Fund to “…identify vulnerabilities, anticipate potential stresses, and act swiftly to play a key role in crisis response”. From then on, the Fund has been ‘requested’ to undertake a range of specific tasks towards a more resilient global financial and monetary system. See Summit on Financial Markets and the World Economy (G20 15 November 2008).
  58. Hamid Faruqee and Krishna Srinivasan (2012) ‘The G-20 Mutual Assessment Process - A Perspective from IMF Staff’ 28 (3) Oxford Review of Economic Policy 493-511.
  59. The G-20 Mutual Assessment Process and the Role of the Fund (IMF Staff Policy Paper 2009).
  60. Review of the Fund’s Involvement in the G-20 Mutual Assessment Process (IMF Policy Paper 2011) 3.
  61. This is called the ‘IMF-link’. See Masahiro Kawai (2015) ‘From the Chiang Mai Initiative to an Asian Monetary Fund’ (ADBI Working Paper Series No. 527); Sussangkarn, C. 2010 ‘The Chiang Mai Initiative Multilateralization: Origin, Development and Outlook’ (ADBI Working Paper 230). However, given both the increase in the total capacity of the CMIM and AMRO’s surveillance infrastructure, the limits were raised to 40% in 2021 english/policy/international_policy/financial_cooperation_in_asia/cmi/ 210331_e.html
  62. Sergei Ulatov, Natalia Pisareva, Artem Levenkov (2019) ‘Achieving Stabilization and Development Objectives in a Single Agenda: The Experience of the Eurasian Fund for Stabilization and Development’ (EFSD Working paper WP/19/2).
  63. Gita Gopinath, Rethinking International Macroeconomic Policy (2017),
  64. Principles for Cooperation between the IMF and Regional Financing Arrangements (G20, 2011).
  65. Luis D. Rosero (2014) ‘Regional Pooling of International Reserves: The Latin American Reserve Fund in Perspective’ 5 (1) Latin American Policy 62-86.
  66. For instance, the 1979 guidelines on conditionality were and further extended in 2002. See Guidelines on Conditionality (IMF 2002) available at /Guidelines-on-Conditionality-PP167.
  67. On the evolution of conditionality see Rosa M. Lastra, Legal Foundations of International Monetary Stability (OUP 2006) 406-425; Rosa M. Lastra (2002) ‘IMF Conditionality’ 4 (2) Journal of International Banking Resolution 167-182.
  68. William W Grimes and William N. Kring (2022) ‘Alternatives to the International Monetary Fund in Asia and Latin America: Lessons for Regional Financial Arrangements’ In: Barrowclough, D., Kozul-Wright, R., Kring, W.N., Gallagher, K.P. (eds.,) South—South Regional Financial Arrangements: Collaboration Towards Resilience (Palgrave Macmillan) 293-339, 296; See also The IMF and Recent Capital Account Crises: Indonesia, Korea, Brazil (Independent Evaluation Office, 2003). Available at
  69. Several new facilities have been instituted at the IMF (1) Supplemental Reserve Facility in 1997 (2) the Contingent Credit Line in 1999 (3) the Flexible
    Credit Line in 2008, and (4) the Precautionary and Liquidity Line in 2011. Yet concerns have remained.
  70. Art. IV Section 3 IMF Agreement.
  71. If one is looking for a definition of surveillance, then the most well accepted one has been provided by what is known as the Crow report. See External Evaluation of IMF Surveillance—Report by a Group of Independent Experts (EBAP/99/86, 1999). Surveillance includes “all aspects of the Fund’s analysis of, scrutiny over, and advice concerning, member countries’ economic situations, policies, and prospects.”
  72. See for instance, Surveillance over Exchange Rate Policies (IMF Decision No. 5392- 77/63, April 29, 1977); Biennial Review of the Implementation of the Fund’s Surveillance and of the 1977 Surveillance Decision—Overview (IMF 2002) 11; Biennial Review of the Implementation of the Fund’s Surveillance and of the 1977 Surveillance Decision—Overview (IMF 2004); Decision on Bilateral Surveillance over Members' Policies (IMF 2007); Modernizing the Legal Framework for Surveillance ― An Integrated Surveillance Decision (IMF 2012); Modernizing the Legal Framework for Surveillance― Building Blocks Toward an Integrated Surveillance Decision (IMF March 2012); Bilateral Surveillance Guidance Note (IMF 2012); Guidance Note for Surveillance under Article IV Consultation (IMF 2015).
  73. The IMF publishes Article IV Consultation reports. CMIM published Article V Consultation Reports. See &
  74. The World Economic Outlook (WEO) and Global Financial Stability Report (GFSR) are the two main tools of multilateral surveillance by the IMF. CMIM publishes ASEAN+3 Regional Economic Outlook Reports (AREO). Both sets of reports can be found WEO -, GFSR -, AREO -
  75. Modernizing the Legal Framework for Surveillance ― An Integrated Surveillance Decision (IMF 2012) 9.
  76. Sabine Schlemmer-Schulte, ‘International Monetary Fund’ in Rüdiger Wolfrum (eds), Max Planck Encyclopaedia of Public International Law (OUP 2011) 54.
  77. Franz Christian Ebert (2020) ‘A Public Law Perspective on Labour Governance by International Financial Institutions: The Case of the IMF’s Article IV Consultations’ 17 (1) International Organizations Law Review 105-132.
  78. On cognitive power see Witold J. Henisz, Bennet A. Zelner and Mauro F Guillén (2005) ‘The Worldwide Diffusion of Market-Oriented Infrastructure Reform, 1977–1999’ 70 (6) American Sociological Review 871-897; Leonard Seabrooke (2014) ‘Epistemic Arbitrage: Transnational Professional Knowledge in Action’ 1 (1) Journal of Professions and Organization 49-64.
  79. Michael Breen & Elliott Doak (2021) ‘The IMF as a Global Monitor: Surveillance, Information, and Financial Markets’ 30 (1) Review of International Political Economy 307-331; Terence C Halliday ‘Legal Yardsticks: International Financial Institutions as Diagnosticians and Designers of the Laws of Nations’ In Kevin Davis and others (eds), Governance by Indicators: Global Power through Quantification and Rankings (OUP 2012); Terence C. Halliday (1985) ‘Knowledge Mandates: Collective Influence by Scientific, Normative and Syncretic Professions’ 36 (3) The British Journal of Sociology 421-447.
  80. IMF Surveillance Factsheet (IMF). Available at IMF-Surveillance
  81. A Year Like No Other (IMF Annual Report, Washington, DC, 2020) 44.
  82. Ngaire Woods, The Globalizers: The IMF, The World Bank, and Their Borrowers (Cornell University Press, 2006).
  83. For a very recent exposition of the topic see Lan Cao, ‘Currency Wars and the Erosion of Dollar Hegemony’ (2016) 38 (1) Michigan Journal of International Law 57.
  84. See Claus D. Zimmermann, ‘Chapter 3: Exchange Rate Misalignment and International Law’ in A Contemporary Concept of Monetary Sovereignty (OUP 2013) 85-142.
  85. any representation made by the member regarding the purpose of its policies will be given the benefit of any reasonable doubt” (IMF ISD 2012, Annex para 3)
  86. Two instances where the IMF came close to finding fault were for Sweden in 1982 and South Korea in 1987. Michael Mussa, ‘IMF Surveillance over China’s Exchange Rate Policy’ (Peterson Institute of International Economics, 19 October 2007)
  87. However, more recent literature has analyzed that such effects are not the same across different trading partners. Only under specific circumstances like when prices in the different trading partners are not flexible and when exporters are pricing their products in the local currency, would the effects of an under-valued exchange rate be a tariff-cum-subsidy. See in this regard Robert Straiger and Alan O Sykes, ‘Currency manipulation and World Trade’ (2010) 9 World Trade Review 583.
  88. Boris Hofmann and Előd Takáts (2015) ‘International Monetary Spillovers (BIS Quarterly Review) available at; Kearns, Jonathan and Schrimpf, Andreas and Xia, Fan Dora (2020) ‘Explaining Monetary Spillovers: The Matrix Reloaded (CEPR Discussion Paper No. DP15006 Available at abstract=3650121.
  89. Kanad Bagchi (2017) ‘Revisiting the Taper Tantrum: A Case for International Monetary Policy Coordination’ 3 (2) Journal of Financial Regulation 280-289; Liaquat Ahamed (2011) ‘Currency Wars, Then and Now: How Policymakers Can Avoid the Perils of the 1930s’ 90 (2) Foreign Affairs 92–103.
  90. Barry Eichengreen and Poonam Gupta (2014) ‘Tapering Talk: The Impact of Expectations of Reduced Federal Reserve Security Purchases on Emerging Markets’ (World Bank Policy Research Working Paper No. 6754) available at ; See also, Raghuram Rajan (2016) ‘Towards Rules of the Monetary Game’ (Speech given at IMF/Government of India conference on ‘Advancing Asia: Investing for the Future’, New Delhi); Michael Debabrate, Sitikantha Pattanaik, Joice John and Harendra Kumar Behra (2016) ‘Global spillovers and Monetary Policy Transmission in India’ (RBHI Working Paper Series No. 03) Available at; Valentina Bruno and Hyun Song Shin (2015) ‘Capital Flows and the Risk-taking Channel of Monetary Policy’ 71 Journal of Monetary Economics 119-13; Aeimit Lakdawala, Timothy Moreland and Matthew Schaffer (2032) ‘The International Spillover Effects of US Monetary Policy Uncertainty’ 133 Journal of International Economics 103525; Ṣebnem Kalemli-Özcan (2019) ‘U.S. Monetary Policy and International Risk Spillovers’ (NBER Working Papers 26297) available at 26297.html
  91. Modernizing the Legal Framework for Surveillance ― An Integrated Surveillance Decision (IMF 17 July 2012); Consolidated Spillover Report - Implications from the Analysis of the Systemic-5 (IMF 2011); Hamid Faruqee and Krishna Srinivasan (2012) ‘The G-20 Mutual Assessment Process - A Perspective from IMF Staff’ 28 (3) Oxford Review of Economic Policy 493-511; See Claudio Borio, Harold James and Hyun Song Shin (2014) ‘The International Monetary and Financial System: A capital Account Historical Perspective’ (BIS Working Paper No. 457).
  92. As the IMF had itself acknowledged “Though the ISD opened up a channel to allow for a discussion of spillover concerns in Article IV consultations, its application has not had much impact on “source” country policies” IMF Advice on Unconventional Monetary Policies (Independent Evaluations Office, 2019) 41. Available at unconventional-monetary-policy
  93. As Lupo-Pasini outs it “International law…protects domestic financial stability as a national sovereign prerogative at the expense of global stability. As long as a state is implementing a domestic stability policy within its sovereign discretion, and as long as it participates in the international economic system, it can lawfully produce negative cross-border spillovers” Lupo Pasini, F. (2017) ‘Financial Stability in International Law’ 18 (1) Melbourne Journal of International Law 45-70.
  94. Indeed, a report published by the OECD in 2011 found that between 1994 and 2007, international capital flows surpassed international trade flows by almost three times. OECD Economic Outlook (OECD 25 May 2011) 292.
  95. It is for this reason that both John Maynard Keynes and Dexter White, principal drafters of the Bretton Woods Agreements were aligned on the idea that “control of capital movements, both inward and outward, should be a permanent feature of the post-war system”. See Eric Helleiner (2015) ‘Controlling Capital Flows ‘At Both Ends’: A Neglected (but Newly Relevant) Keynesian Innovation from Bretton Woods’ 58 (5) Challenge 413–27, 414; See also Benn Steil, The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White, and the Making of a New World Order (Princeton University Press 2013).
  96. Barry Eichengreen, Globalizing Capital: A History of the International Monetary System (Princeton University Press, 2019); Stijn Claessens and Ayhan Kose (2013) ‘Financial Crises: Explanations, Types, and Implications (IMF Working Paper 13/28).
  97. Antoine Martin & Bryan Mercurio (2017) ‘The IMF and Its Shifting Mandate towards Capital Movements and Capital Controls: A Legal Perspective’ 44 (3) Legal Issues of Economic Integration 211-235; Antoine Martin and Bryan Mercurio (2017) ‘The IMF Mandate on Capital Controls: Legal Analysis of the Article IV Byroad and of the Institutional View of 2012’ 34 (3) Arizona Journal of International & Comparative Law 529-554; Jeffrey Chwieroth (2007) ‘Neoliberal Economists and Capital Account Liberalization in Emerging Markets’ 61 (2) International Organization 443-463, 448.
  98. David Howarth and Tal Sadeh (2011) ‘In the Vanguard of Globalization: The OECD and International Capital Liberalization’ 18 (5) Review of International Political Economy 622-645; Michael Waibel, ‘BIT by BIT – The Silent Liberalisation of the Capital Account’ in Christina Binder, Ursula Kriebaum, August Reinisch and Stephan Wittich (eds.,) International Investment Law for the 21st Century: Essays in Honour of Christoph Schreuer (OUP 2009) 497-518; Rawi Abdelal, Capital Rules: The Construction of Global Finance (Harvard University Press 2009).
  99. Kevin P Gallagher 'Regaining Control? Capital Controls and the Global Financial Crisis' in Wyn Grant, and Graham K. Wilson (eds), The Consequences of the Global Financial Crisis: The Rhetoric of Reform and Regulation (OUP 2012) 110-138.
  100. For an account of which countries imposed capital controls see ‘Recent Experiences in Managing Capital Inflows: Cross-Cutting Themes and Possible Policy Framework’ (IMF 2011).
  101. For an analysis see Ilene Grabel (2011) ‘Not Your Grandfather's IMF: Global Crisis, ‘Productive Incoherence’ and Developmental Policy Space’ 35 (5) Cambridge Journal of Economics 805-830.
  102. Ilene Grabel (2015) ‘The Rebranding of Capital Controls in an Era of Productive Incoherence’ 22 (1) Review of International Political Economy 7-43, 8.
  103. The Liberalization and Management of Capital Flows - An Institutional View (IMF Policy Paper 2012); see also Adam Feibelman (2015) ‘The IMF and Regulation of Cross-Border Capital Flows’ 15 (2) Chicago Journal of International Law 409-450.
  104. A recent study by the UNCTAD found that contemporary BITs, at least the ones signed between 2012 to 2014 have overwhelmingly (around 70 percent) included exceptions of capital transfer provisions to deal with balance-of-payments instability, see ‘Taking Stock of IIA Reform’ (UNCTAD IIA Issues Note No. 1, March 2016); Article Art. 29.3 The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) provides for BOP exception to the freedom of capital and so does Art 28.5 EU-Canada Comprehensive Economic and Trade Agreement (CETA).
  105. As the IMF itself notes. “…most of the current bilateral and regional agreements addressing capital flow liberalization do not take into account macroeconomic and financial stability. The patchwork they form for the regulation of international capital movements is thus generally less conducive to supporting IMS stability or a multilateral approach” (The Liberalization and Management of Capital Flows - An Institutional View (IMF Policy Paper 2012)).
  106. Parmeshwar Ramlogan and Fritz-Krockow Bernhard ‘Chapter 4. Special Drawing Rights’ In International Monetary Fund Handbook, (USA: International Monetary Fund, 2007).
  107. Art. VIII, Section 7 IMF Agreement.
  108. Rohini,Hensman and Correggia Marinella (2005) ‘US Dollar Hegemony: The Soft Underbelly of Empire’ 40 (12) Economic and Political Weekly 1091–1095; Blinder, Alan S (1996) ‘The Role of the Dollar as an International Currency’ 22 (2) Eastern Economic Journal 127–36.
  109. Emmanuel Carré and Laurent Le Maux (2022) ‘Financial Instability and International-Lender-of-Last-Resort Theory from the Gold Standard to the Dollar System’ 63 (2) Jahrbuch für Wirtschaftsgeschichte / Economic History Yearbook 311-344.
  110. Aditi Sahasrabuddhe (2019) ‘Drawing the Line: The Politics of Federal Currency Swaps in the Global Financial Crisis’ 26 (3) Review of International Political Economy 461-489; Devika Dutt ‘Exorbitant Privilege or Ultimate Responsibility?: Access to the International Lender of Last Resort’ (October 2020) available at
  111. These costs come in the form of reduced investment capacity and sometimes monetary instability.
  112. Epstein, G. (2014) ‘The Contested Terrain Approach to the Political Economy of Central Banking’ Political Economy Research Institute Working paper series No 354.
  113. David Andrews (eds.,) International Monetary Power (Cornell University Press, 2006); Jonathan Krishner, Currency and Coercion: The Political Economy of International Monetary Power (Princeton University Press 1995).
  114. Karina Patrício Ferreira Lima (2022) ‘Sovereign Solvency as Monetary Power’ 25 (3) Journal of International Economic Law 424–446.
  115. Barry Eichengreen, Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System (OUP 2011).
  116. Benjamin J. Cohen, ‘The Macro foundations of Monetary Power’ in David M. Andrews (eds.,) International Monetary Power (Cornell University Press 2006).
  117. For an analysis of spillovers from Federal Reserve and ECB see, Jiaqian Chen, Tommaso Mancini Griffoli, Ratna Sahay (2014) ‘Spillovers from United States Monetary Policy on Emerging Markets: Different This Time?’ (IMF Working Paper No. 240); Matteo Falagiarda, Peter McQuade and Marcel Tirpák (2015) ‘Spillovers from the ECB’s Non-Standard Monetary Policies on Non-euro area EU Countries: Evidence From an Event-Study Analysis’ (ECB Working Paper No. 1896).
  118. Shaghil Ahmed, Ozge Akinci, Albert Queralto (2021) ‘U.S. Monetary Policy Spillovers to Emerging Markets: Both Shocks and Vulnerabilities Matter’ (International Finance Discussion Papers No. 1321).
  119. See for instance, ‘Navigating the High-Inflation Environment’ (IMF Global Financial Stability Report, 2022). Available at /GFSR/Issues/2022/10/11/global-financial-stability-report-october-2022
  120. Kanad Bagchi, ‘Rosa Luxemburg and the Imperialism of Money’ (Critical Legal Thinking Blog, 17 November 2022) available at; Jacqueline Best ‘Civilizing through Transparency: The International Monetary Fund’ In Leonard Seabrooke and Brett Bowden (eds.) The Global Standards of Market Civilization (Routledge 2006) 134-145.
  121. A case of direct form of subordination is the use of CFA Franc – a colonial currency which still operates in 14 countries in West and Central Africa and is strictly pegged to the Euro (formerly the French franc). See Fanny Pigeaud and Ndongo Samba Sylla, Africa's Last Colonial Currency: The CFA Franc Story (Pluto Press 2021).
  122. Ndongo Samba Sylla, ‘The CFA Franc: French Monetary Imperialism in Africa’ (LSE Blog 12 July 2017); Juliet Johnson, Priests of Prosperity: How Central Bankers Transformed the Postcommunist World (Cornell University Press 2016).