International Financial Flows and Financial Crises after the End of the Bretton Woods System

Abstract

Abstract International capital flows resumed in the 1970s. These international financial flows were often a driver for instability and crises instead of economic growth. The determinants of these crises varied over the years, but cross-border capital flows, fixed exchange rates were often involved. Incentive problems like moral hazard played a role, as did the structure of international lending and local policy choices. The successive waves of crises challenged the world to learn from and adapt to the new reality of financial flows with new policies. International lending and borrowing also created slow-burn, train-wreck-in-slow-motion debt crises in dozens of the world’s poorest countries. Unsustainable rises in foreign debt culminated in a powerful international movement in favor of debt relief. In these countries, odious debt—national debt piled up by despotic (and unaccountable) politicians—tended to crush the basis for economic growth for generations.