Money Matters: An IMF Exhibit -- The Importance of Global Cooperation

Debt and Transition (1981-1989)

Part 6 of 7


Conflict &
(1871 - 1944)

Destruction &
(1945 - 1958)
The System
In Crisis

(1959 - 1971)
the System
(1972 - 1981)
Debt &
(1981 - 1989)
Globalization and Integration
(1989 - 1999)

The Power of Private Capital

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By the 1990s, transfers of private capital from one country to another had reached thousands of billions of U.S. dollars each year. Largely unregulated by governments and transmitted through cyberspace, international capital flows sought profit wherever it could be found.


Foreign Exchange Market


Is Anyone in Control?

Although incoming capital flows helped countries develop, the sudden reversal of flows, or "capital flight," could cause panic and financial crisis.

Fearing that control over money had been transferred from national authorities to the private sector, many called for better monitoring of international capital flows (by institutions like the IMF) or even restrictions on these transfers.


Growth of Capital Markets

By the end of the decade, international capital markets had grown to an extent unimagined in 1980:
  • In the United States, transfers of stocks and bonds between domestic and foreign residents rose from 10% of GDP in 1980 to 93% in 1990.
  • Japan's corresponding figures were 7% and 119% of GDP.
  • Gross international equity flows - $800 billion in 1986 - had by 1990 exceeded $1.44 trillion.

So great was the growth that some feared control of the monetary system was shifting from monetary authorities to the private sector.


Growth of Foreign Exchange Markets

As a result of the unprecedented growth of international capital markets, foreign exchange markets (where one national currency is sold for another) also experienced a surge in activity.


Countries Don't
Go Bankrupt
Time Bomb Explodes Solving the Problem Attempted Rescue
Regional Economic Integration The Power of Private Capital Thaw in the East

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