Different systems of international governance

International governance is concerned with setting rules governing the transactions of goods and services, capital movements, and investment incomes across borders. It also refers to the payment systems that are designed to facilitate and regulate these transactions. Those rules are not set in a vacuum; there are social and political forces behind their acceptance, which determine their size and operations.

In other words, rules derive from economic, social, and political determinants acting within and between each country, and these determinants may change through time as needs and expectations evolve. Of particular relevance here, we may assume certain countries will acquire the status of “leader” from time to time, and will play a crucial role in the choice and management of international institutions

The different systems of governance of movements of goods can be summarized in the tension between the adoption of free trade and markets regulated by tariff and/or non-tariff barriers. Trade barriers raise the price of imported goods in order to reduce imports of goods produced elsewhere and safeguard domestic producers against foreign competition, but typically end up by transferring a good part of the cost to domestic consumers. Similarly, the rules presiding over capital movements are determined by a tension between complete freedom and some kind of regulation that can be different for different kinds of movements, usually more stringent for short-term ones, and are designed to confer safety and stability.

Given the general purposes of this book, we are more interested in the international system of payments and the different monetary regimes that can be adapted to govern the operations of one country in relation to the others. These rules define the relationship of the home to foreign currencies in terms of relative value, circulation, and convertibility. They add to, and may be independent of, the rules that define the internal monetary unit – that is, of the instruments used as domestic legal tender.

A monetary regime is required to ensure stability in terms of transfers of purchasing power, to eliminate imbalances and settle conflicting interests of the different countries, as well as to complement rules governing other aspects of international relationships.