The International Monetary System and the Erosion of Sovereignty: Essay in Honor of Cynthia Lichtenstein

Abstract

When the major international organizations were established at the close of World War II, it was understood that they were concerned with international relations-political, economic, and social. As was made explicit in the U.N. Charter, but applicable in all the organizations, matters "essentially within the domestic jurisdiction of any state" were not the concern of the international organizations or the international community. In particular, the International Monetary Fund was to focus on member states' balance of payments, exchange rates, and exchange controls, but not on their domestic policies or priorities. Gradually, it became clear that the wall between domestic and international policies could not be maintained. As the IMF moved to a regime of conditionality for the use of its resources, and thereafter to performance targets and deadlines, domestic policies of states became subjects of examination in ever increasing detail. Not only national budgets, taxes, and the money supply, but subsidies, wage policies, competition law, corporate governance, even accounting practices and regulatory reform became subject to scrutiny, negotiation and commitment. The Essay does not condemn this erosion of sovereignty, but points out that neither the member states nor the IMF have come up with a new theory to reflect the new reality, or reached agreement on where a new boundary may be set between national and international concerns.