New thinking for a new financial order

The current credit crunch has added new urgency to discussions about redesigning the rules of the game for global capital markets. Clearly, risk management has lagged behind innovation in the financial system, and existing regulatory frameworks and institutions need to be updated to keep pace. But too often, proposals for reform reflect outdated thinking based on a view of the world as it existed in 1944, when the Bretton Woods system was created. It was an era in which national economies were largely managed by governments, international financial activity extended little beyond trade, and the United States was the center of the financial scene. In order to develop appropriate new rules for the current era, we must begin to think differently about the rapidly evolving financial world, focusing on three key dimensions: activity on a global scale, new private and public actors, and financial activity taking place outside traditional publicly traded and regulated markets.

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