The International Politics of Harmonization: The Case of Capital Market Regulation

Abstract

The vast expansion of international nancial activity over the last decade has been a central fact of international economic life. Balance-of-payments statistics indicate that cross-border transactions in bonds and equities among the G-7 countries rose from less than 10 percent of gross domestic product (GDP) in 1980 to over 140 percent in 1995. International bond and equity markets have reached staggering proportions: by the end of 1997, portfolio holdings of equity and long-term debt securities reached nearly $5.2 trillion. Capital ows to developing countries and countries in transition grew from $57 billion in 1990 to over $286 billion in 1997 before plummeting to $148 billion in 1998. Foreign exchange transactions reached an estimated average daily turnover of nearly $1.5 trillion in 1998 compared with a daily turnover of $590 billion in 1989. The annual turnover in derivatives contracts nancial agreements that derive their value from the performance of other assets, interest or currency exchange rates, or indexes was valued at $3.4 trillion in 1990. In 1998, trading and derivatives activities of seventy-one of the world's leading banks and securities firms totaled more than $130 trillion.