The Extended Panda's Thumb and a New Global Financial Architecture
AbstractAn evolutionary theory of international financial institutions is developed and two broad types of possible (evolutionary) equilibrium Global Financial Architectures(GFAs) are identified. The first is called an overarching type, exemplified by the classical gold standard and the defunct Bretton Woods system. The second is called a hybrid form that allows for the existence and coevolution of some Regional Financial Architectures(RFAs) as well. The changing roles of the IMF and national economic policies are examined within these two possible financial architectures under globalization It is found that from an evolutionary perspective, a hybrid form with a reformed IMF and regional cooperation through appropriately designed RFAs can create the best possible institutional and policy environment for financial stability and sustained growth .An evolutionary argument, called "the extended panda's thumb", is advanced to establish the possibility of adapting many existing institutions including the IMF, for creating a hybrid GFA. The tentative steps taken towards regional cooperation in Asia after the financial crisis are discussed to illustrate the opportunities and challenges posed by the need to evolve towards a hybrid GFA.
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