The growth and proliferation of regional financial arrangements have substantially increased the complexity of the global financial safety net. The International Monetary Fund (IMF) often shares the task of fighting crises with such institutions. But, in addition to significant benefits, institutional overlap poses potential pitfalls that architects of financial governance should anticipate and avoid. This paper addresses seven such pitfalls, as they relate to competition, transparency, moral hazard, special-interest capture, secretariat autonomy, conflict resolution and creditor seniority. The paper also provides an update on regional arrangements in Europe, East Asia and Latin America, reviews their engagement with the IMF and offers recommendations for their further development. Critiquing official reports on financial governance, the paper concludes, among other things, that institutional competition, while harmful in program conditionality, can be beneficial in economic analysis and surveillance; regional arrangements should become more transparent; and the acuteness of moral hazard depends critically on institutional governance. Finally, because each affects the ability of others to carry out their tasks, these institutions should co-evolve.
Series: CIGI Papers Series
CIGI Papers present in-depth analysis and discussion on governance-related subjects. They include policy papers that present CIGI experts' positions or contributions to policy debates, and background papers that contain research findings, insights and data that contribute to the development of policy positions.