The Legal Approach Restrictions to the Design of the New International Financial Architecture

Abstract

At the international level, there is a consensus regarding the importance of the institutional framework for the efficient functioning of the financial system and for generating the right incentives to maintain market discipline. For this reason, over the last ten years, discussions have been ongoing, especially at the technical level, regarding the conditions for a new international financial architecture that adapts to the reality of a globalized financial system. Policies, guidelines, and minimum standards for financial systems have been developed and incorporated primarily through informal norms known as soft law and by similarly informal bodies. The G20 Summit Declaration in Washington in November 2008 established five common principles for financial system reform that should be considered in this new architecture, which can be defined as "the establishment and implementation, at the national and international levels, of rules, principles, and institutional arrangements that ensure the stability of the international financial system, preventing crises and establishing institutional mechanisms to address or mitigate them." However, there is no clear awareness that the problem of the new international financial architecture is primarily a legal one: the informal bodies created and the soft law are insufficient to establish the necessary conditions to ensure the mandatory compliance and general application of this global financial regulatory framework. Furthermore, the principle of state sovereignty, the foundation of current legal systems and legal orders, which are fundamentally national in nature, and a fundamental norm for relations between states in international public law, makes the creation of a new global governance system complex and time-consuming. Such a system would enable this new international financial architecture and allow for the rapid restoration of lost confidence and stability to this new global financial system.