Global Financial Crisis and its Impact on International Economic Governance

Running head: INTERNATIONAL POLITICAL ECONOMY
International Political Economy
Name of the student
Name of the university
Author Note

1INTERNATIONAL POLITICAL ECONOMY
The financial crisis, also known and global economic crisis of 2007-2008, has
occurred as the worst economic crisis after the Great Depression of 1930s. In 2007, the U.S
economy has experienced this crisis for the first time in its subprime mortgage market but
gradually has turned towards a full-blown banking crisis in international market after the
collapse of Lehman Brothers in 2008 (Aizenman, Jinjarak, Estrada and Tian 2018). This has
happened because banks have taken excessive risks and this further has magnified financial
impact internationally. The crisis has been followed by the Great Recession and economic
downturn (Pautz 2017). Thus, policymakers of various countries have tried to overcome this
negative economic condition. Due to this crisis, the World Trade Organisation (WTO) has
been suffered for twelve years while the International Monetary Fund (IMF) and G20 have
remained unable to response regarding this issue. Thus, it is essential to observe that whether
the Global Financial Crisis (GFC) has altered the perceptions of global economic governance
or not.
This GFC has brought negative implications on economy worldwide, for instance, it
has decreased the benefits obtained from international trade, risks associated with capital
flows and unequal growth of income among higher income people. Various analyses have
been done for defending and criticising the success related to global economic governance
after 2007-2009 financial crisis (Claessens and Van Horen 2015). Global economic
governance has been reformed due to a number of models. These models have possessed
some common factors among them. Firstly, none of these models have predicted a full-
fledged return of Bretton Woods. Secondly, none of these models have proposed a return for
the dollar-based exchange standard of gold.
This financial crisis of 2007-2008 has encouraged the prospects of “Bretton Woods
moment”, where the financial system could be restructured internationally. Some economists
have argued for this outcome though this has disillusioned due to limited nature of agenda of

2INTERNATIONAL POLITICAL ECONOMY
international financial reform (Yusof 2017). However, innovation and success of conference
related to the Bretton Woods have become possible due to distinctive political conditions,
which cannot be found at present. These conditions are centralised power within the system,
wartime conditions and a consensus about transnational expert. According to the history of
Bretton Woods system, it has not emerged due to a single moment. Instead of this, the system
has extended through historical process. If a new financial system in international economy
generates at present, it will be an incremental process of development with slower growth
rate that can be segmented into four parts, which are, an interregnum, a valid crisis, an
implementation phase and a consecutive part. From this point of view, it can be said that
developments after post-crisis period are significant compare to before. The GFC of 2007-
2008 has built up two acceptable crises associated with leadership and international financial
policy. This financial crisis has generated an initiative for international reform, which has
remained unusual for coordinated nature in international market and its speed.
After the occurrence of this economic crisis, three G20 Summits have stimulated
global collaboration successfully, forcing the IMF with almost $1 trillion resources. China,
India, Brazil and Russia have come together and this incident further has generated the
concept of multilateral era related to governance emerging. Central banks of various
countries have coordinated their actions while new international institutions have been
created, such as, the Financial Stability Board. The purpose of this coordination has remained
at global level based on national financial authorities, international standard setting bodies
and operation of regulation along with financial sector policies and supervisory. At the same
time, the World Bank, IMF and other development banks have been promised for new
resources for moderating the emergency of development that has occurred due to this crisis
(de Haan, Bodea, Hicks and Eijffinger 2018). Moreover, the United Nations has become a
chief forum to discuss on various matters related to international security. Thus,