At the same time, they limit ‘real’ investment opportunities, including in developing countries, where one would expect them to be greatest. These features increase structural vulnerability by raising the volatility and destructive impact of key economic parameters: exchange rates, stock markets and interest rates. In what follows I attempt to show, first, the detrimental effects of the present liberalized world financial system on a majority of developing countries and, second, that the key features driving these effects result from the combination of the free movement of private capital and the ability of the us, as supplier of the main international currency, to run persistent current-account deficits-a combination that continuously raises the level of world liquidity. Per capita international income distribution has become more unequal by several plausible measures, as has income distribution between the world’s households.

In combination, these systems have produced the slow rate of average income growth of most developing countries over the past quarter-century. It is, of course, difficult to disentangle the effects of the financial system from those of, say, the trade system, which also puts obstacles in the way of former ‘Third World’ countries rising up the value-chain into higher value-added activities. Yet in the post-Bretton Woods era, the functioning of the latter has been a major source of vulnerability for developing countries, exposing large swathes of their populations to sudden falls in real incomes and depressing national growth rates. C ritics of neoliberal globalization have tended to focus on the role of the international institutions- imf, wto, World Bank-rather than on the world financial system itself.

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