An analysis of current and alternative financial architecture proposals: Relevance, implications and effects for smaller economies

This paper provides a critical examination of the current global financial architecture and an overview of alternative proposals highlighting their effects and relevance to smaller economies. The paper comprises nine sections. Following the introduction the second section presents stylized facts pertaining to the end of the Bretton Woods Era, globalization and financial crises. The third section examines the relationship between the current financial architecture and the economic performance of developing economies. The fourth section presents Thirlwall's balance-of-payments constrained growth model. The fifth section analyses the effects and implications of the current financial system and of the external constraint for smaller and in particular for the Caribbean. Sections six and seven present two approaches for the reform of the international financial system. Following Davidson (2002) these are termed 'the plumbers and the architects'. The former seeks to modify the existing system in order improve its efficiency and to correct for its weaknesses. The later, the architectural solution is based on the underlying premise that the existing global financial system is flawed and that it must be overhauled. Section eight analyses the relevance of the financial architecture proposals for the case of smaller economies. The final reflections are found in the conclusion.