Report by the UNCTAD Secretariat Task Force on
Systemic Issues and Economic Cooperation
UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT
Contents
Key messages .......................................................................................................................................................iii
Foreword by the Secretary-General of UNCTAD................................................................................................. ix
Executive summary .............................................................................................................................................. xi
Chapter I – A crisis foretold .................................................................................................................................. 1
A. Introduction ...................................................................................................................................................... 1
B. What went wrong: blind faith in the efficiency of financial markets................................................................ 1
C. What made it worse: global imbalances and the absent international monetary system.................................... 4
D. What should have been anticipated: the illusion of risk-free greed and profligacy ...........................................8
Chapter II – Financial regulation: fighting today’s crisis today ........................................................................... 11
A. It was not supposed to end like this ................................................................................................................. 11
1. Financial efficiency and gambling ............................................................................................................ 12
2. Avoiding regulatory arbitrage and the role of securitization..................................................................... 13
3. Micro and macro prudential bank regulation ............................................................................................ 16
4. The need for international coordination .................................................................................................... 17
5. Financial regulation and incentives ........................................................................................................... 17
B. Lessons for developing countries..................................................................................................................... 18
1. Financial development requires more and better regulation...................................................................... 19
2. There is no one-size-fits-all financial system ............................................................................................ 20
C. Conclusion: closing down the casino............................................................................................................... 20
Chapter III – Managing the financialization of commodity futures trading ........................................................ 23
A. Introduction: commodity markets and the financial crisis ............................................................................... 23
B. The growing presence of financial investors in commodity markets.............................................................. 25
C. The financialization of commodity futures trading.......................................................................................... 26
D. Financialization and commodity price developments...................................................................................... 32
E. The implications of increased financial investor activities for commercial users of commodity futures
exchanges........................................................................................................................................................ 35
F. Policy implications .......................................................................................................................................... 36
1. Regulation of commodity futures exchanges ............................................................................................ 36
2. International policy measures.................................................................................................................... 37
G. Conclusions .................................................................................................................................................... 38
Chapter IV – Exchange rate regimes and monetary cooperation.......................................................................... 41
A. Introduction: currency speculation and financial bubbles................................................................................ 41
B. The history of different exchange rate regimes is of a series of failures.......................................................... 44
C. Global exchange rate management, trade and investment ............................................................................... 47
D. Currency crisis prevention and resolution ....................................................................................................... 50
E. A multilateral approach to global exchange rate management......................................................................... 51
F. Conclusion....................................................................................................................................................... 54
Chapter V – Towards a coherent effort to overcome the systemic crisis.............................................................. 55
A. More and better coordinated countercyclical action is needed ........................................................................ 55
B. The State is back but national action is not sufficient...................................................................................... 57
1. Preventing the competition of nations ....................................................................................................... 57
2. Intervention in financial markets is indispensable..................................................................................... 58
C. No “crisis solution” by markets ....................................................................................................................... 59
References ........................................................................................................................................................... 61