Reforming the International Financial System: Core and Periphery Issues and the Dollar Standard

The floating dollar standard was rooted in the aggressive pursuit of liberalized financial markets and the asymmetric integration of countries in the periphery into the international financial system. The mechanism of generating international liquidity was buttressed by the concerted advocacy of trade and financial liberalization of developing countries in the interests of preserving dollar dominance. This had enabled fragility to be exported to the periphery through two and a half decades of growing US deficits, while at the same time imparting greater elasticity to the adjustment mechanisms in the core. The debates and negotiations around refashioning the global financial architecture in the wake of the current global crisis need to take these core –periphery issues into account.