CEPR Discussion Paper: The Global Capital Market Reconsidered

Maurice Obstfeld

July 2021


While the globalization of production has been a prominent target of anti-globalization backlash, globalized finance has seemed to be much less in the public bull’s-eye. The blueprint for the postwar international economy agreed at Bretton Woods in 1944 envisioned nothing like today’s extensive and fluid global capital market. The demise of the 1946-1973 fixed exchange rate system, however, also brought a progressive dismantling of barriers to international financial flows motivated by special-interest politics, national economic competition, and ideology â?? alongside the benign desire for a more efficient international allocation of capital. Unfortunately, free cross-border financial capital mobility can compromise governments’ capacities to attain domestic economic and social goals in several ways. This essay links the dynamics of financial liberalization to the Teflon-like resilience of finance to backlash so far, and suggests that stronger backlash could emerge if national governments fail to enhance multilateral cooperation to manage the financial commons.

The Global Capital Market Reconsidered