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The need to reform the Global Financial Architecture

G-20 meeting (added to Spain and Holland) in 2008 during a meeting in the USA.

The constant and increasingly impactful financial crises that have occurred since the last decades of the last century show that a reform of the Global Financial Architecture is necessary.. Before I understand what it means, it is important to know what the global financial architecture is.

The global financial architecture can be defined as a set of international agreements and international institutions that promotes the international flow of capital with the aim of facilitating investment and financing international trade.. It is the consolidation of coordinated work (even if informally) of different Multilateral Agreements, Central Banks and Intergovernmental Organizations.

Among the characteristics of the current global financial architecture, it is possible to highlight: (1) the tendency towards the same perception about how the regulatory system should operate to organize financial flows, e (2) the use of multilateral institutions as the best way to promote discussion about financial flows. In the latter case, the International Monetary Fund (IMF) appears prominently.

Even with this apparent consensus around the fundamental rules, financial crises continue to appear and are increasingly deeper.

Some discussions have taken place to seek alternatives to the current Global Financial Architecture in order to prevent new financial crises from emerging.. The G20 appears as one of the privileged spaces for this discussion. since its appearance, one of the group's ideas was the creation of responses and alternatives to the financial crises that affect different countries, seeking alternative regulatory proposals to existing ones. At the same time, because it's a group, Your suggestions are not necessarily implemented.

Another space for discussion is the BRICS. It is important to note that the countries that form this group are not the dominant ones (with the exception of China, that opens up a space for discussion), then everyone has systemic influence. This is because its global economic and financial weight can easily create a domino effect that affects the financial system globally.. When the group was created, its interest in rethinking the current Global Financial Architecture was made clear, showing how sensitive this topic is also for the countries that make up it.

Even so, the current effort to reform the Global Financial Architecture has shown itself to have low impact. To understand the reason for these timid results, It is important to understand the role of the dollar in the Global Financial Architecture.

To the extent that financial flows depend on currencies, there must be strong and stable currencies in which countries can make their international reserves, in addition to using them to support international financial flows. Even though the Euro is a relevant currency on the world stage, clearly the dollar is dominant. Much of the world's pricing is done in dollars, Most international commercial transactions are carried out in dollars. This makes access to the dollar appear to be fundamental..

The point is that the role of the dollar goes beyond being the preferred transaction currency within the Global Financial Architecture. The dollar is also an element of power, possibly as important as military power. The conflict between Russia and Ukraine and the way sanctions against Russia were constructed is a good example of its power. Suspension of access to currency, as well as the freezing of Russian international reserves show this other use of the dollar.

This is just a symbolic case of countries' dependence on the dollar as the major reserve currency and international transactions.. E, to the extent that there is a projection of power through the dollar, it is easier to understand the reason why there is a great force against the reform of the Global Financial Architecture. It's not just about creating mechanisms to prevent financial crises from occurring, This must be done while ensuring the permanence of the dollar as the major international currency.

Actions such as the creation of direct payment mechanisms between countries, without the involvement of the dollar, these are important movements to reduce its centrality. Within the scope of Mercosur and BRICS, systems like this have already been developed, but still need to be improved. It is necessary that more systems are developed in order to remove the centrality of a currency controlled by a State (therefore, politically usable).

We may not see a profound reform of the Global Financial Architecture in the coming decades, but it is important to develop alternatives to this large system.

Rodrigo Cintra
Post-Doctorate in Territorial Competitiveness and Creative Industries, by Dinâmia - Center for the Study of Socioeconomic Change, of the Higher Institute of Labor and Enterprise Sciences (ISCTE, Lisboa, Portugal). PhD in International Relations from the University of Brasília (2007). He is Executive Director of Mapa Mundi. ORCID