ABSTRACT
This chapter offers an understanding of the basis for a strengthening or reform of the international financial system and, therefore, the rationale behind the preventative reforms advanced by the Group of Seven (G7) Finance Ministers. It focuses on reform proposals most likely to be acted upon, that is, those drafted by the G7 Finance Ministers in Strengthening the International Financial Architecture, Report of the G7 Finance Ministers to the Koln Economic Summit. The chapter demonstrates that the overarching importance of a well-developed, high-quality system of financial intermediaries. Much has been made of the role of capital flows and financial speculators in the context of global integration. Following the financial crises of 1994 and 1997, however, criticism of globalised financial markets for their shortcomings has been unremitting. Capital market liberalisation has become an appealing goal to many nations because of the perceived allocative benefits and efficiency gains.
