At the turn of the twenty-first century, the merits of international financial integration are under more forceful attack than at any time since the 1940s. Even mainstream academic proponents of free multilateral commodity trade, such as Jagdish Bhagwati, argue that the risks of global financial integration outweigh the benefits. Critics from the left such as Lord Eatwell, more wary even of the case for free trade on current account, claim that since the 1960s “free international capital flows” have been “associated with a deterioration in economic efficiency (as measured by growth and unemployment).”

Such a resurgence of concerns about international financial integration is understandable in light of the multiple crises seen since the early 1990s in Western Europe, Latin America, East Asia, Russia, and elsewhere. Supporters of free trade in tangible goods have long recognized that its net benefits to countries typically are distributed unevenly, creating domestic winners and losers. Recent international financial crises, however, have submerged entire economies and threatened their trading partners, inflicting losses all around. International financial transactions rely inherently on the expectation that counterparties will fulfill future contractual commitments; they therefore place confidence and possibly volatile expectations at center stage. These same factors are present in purely intranational financial trades, of course, but the relatively higher costs of trading goods and assets internationally make the adjustments to market shocks more costly. Furthermore, problems of oversight, adjudication, and enforcement all are orders of magnitude more difficult among sovereign nations with distinct national currencies than within a single national jurisdiction. And because there exists no natural world lender of last resort, international crises are intrinsically harder to head off and contain than are purely domestic ones.