This post was revised and edited on 1st July 2025.
Recently, I’ve been paying more attention to this phrase: ‘International Financial Architecture’.
For instance, it turned up in here: “… reform of the international financial architecture…(to) make financial flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development (…)’ (Article 2.1c, Paris Agreement)” [1].
Although I’ve been blogging about climate finance for a while now, I still mentally balk at the words international financial architecture – it’s like getting to an ổ voi (massive pothole) in the road and now you just have to find a way to avoid it.
There have been various calls to reform the international financial architecture [1,2,3,4] so that a greater volume of finance can be ‘mobilised’ through private climate finance and fair debt. However, I actually don’t know what ‘the international financing architecture’ is right NOW.
This post is an attempt to find out.
Institutions, Policies, Practices
Many documents start with a definition:
“a framework of institutions, policies, rules, and practices that govern the global financial system…. a complex structure of international organisations, such as the International Monetary Fund…and the WBG (World Bank Group), collectively known as the Bretton Woods institutions, regional development banks, national financial institutions, and international, multinational, and national regulatory bodies” [1].
“a set of international financial frameworks, rules, institutions and markets … governing trade, tax, financial integrity, technology, environmental sustainability and climate action, as well as other development issues” [2].
“a complex framework of institutions, agreements, rules and practices …entities and mechanisms designed to facilitate global economic interactions, ensuring international monetary stability and cooperation among nations… (such as) … the IMF…World Bank… G7 and G20; … Organization for Economic Cooperation and Development, World Trade Organization and the United Nations …(and) other standards setters such as credit rating agencies…. (but there is no) holistic democratic governing body” [3].
A remark-able aspect of these definitions are the words used.
Frameworks, architectures, institutions, entities – the words create a metaphor of something physical that is out there. And at the same time, create a sense that the physical is somewhere else… but not here, in the place that I am and the place that you are, right now. Separate from us, unconnected.
Where is the connection to real life? I’m leaning over the motorbike, looking deeper into the pothole and it looks darker than ever.
So, let’s take a different angle. If international finance is an architecture, what are the physical properties of this thing? Where is the stuff that we can knock our fingers against, and say, “Yep, it’s solid”.
Raw Materials
Central to international finance are financial exchanges. Historically, these were physical spaces (such as a coffee house) where merchants could meet and discuss business deals. But since the 1980s, human bodies on an exchange floor have been replaced by electronic matching engines enabled by our digital transformation.
Digital networks are materials intensive. We use physical things (computers, mobile phones, other devices) to interface with digital networks. Communications and data transmissions pass through mobile transmission networks, fibre optics, submarine cables and satellites. Data storage and so-called cloud services requires physical data centres of hardware and IT equipment [5].
Digital devices, hardware, networks, satellites, cables are made from plastics, glass and ceramics, as well as numerous minerals and metals obtained through mining or to a much less extent salvage and recycling.
“the world is moving from dependence on fossil fuels to dependence on multiple elements in the periodic table” [5].
Most international data flows through submarine cables. While older cables are severed and new cables laid down, by 2021 there were an estimated 574 active and planned cables. These all require engineering, machines, and human power to plan, design, lay, and operate cables under the ocean floor [5].
An increasing number of satellites are important in moving data – by April 2023, there were 7,560 operating satellites in space with 70% owned by a US organisation and 10% by Chinese [5]. Again, consider the tangible engineering necessary to build a satellite and rocket, and ensure a successful launch and maintenance in space and which later contributes to over 8,000 tonnes of space junk [6] circulating Earth.
International finance is heavily dependent on air conditioned data centres that are greedy on electricity and water. The sheer number of these physical places has increased over recent years as well as changing to meet evolving computer-intensive workloads (cloud services, artificial intelligence, machine learning, Internet-of-Things, blockchain and cryptocurrencies, 5G mobile networks). By 2022, there were over 800 hyperscale data centres worldwide (53% in the USA, 15% in China) [5].
And thinking historically, these days the Society for Worldwide Interbank Financial Telecommunications (SWIFT) handles about 80% of global payment messaging. But historically global payments date back to slave trade and imperialism. The transfer of payments and credit posed huge challenges in those days and historical studies demonstrate that slaves became a type of collateral in credit transactions – tangible raw materials in the then international finance architecture [7].
Some Glue
However, what holds all these raw materials together, to create and maintain connection between the digital and human bodies. If international finance is tangible, how does it stick together?
Let’s consider value, price, risk.
These basic concepts show up in common methods of valuation and investment.
Let’s say you have savings, and you want to use those savings to make more money (use money to make money). What could you do? Put the money into a bank account and wait for interest? Loan it to a friend for their new business venture? Go to the casino?
You decide that you can’t decide and ask an investment advisor to do so. Your investment advisor will most likely follow a strict set of procedures when deciding what to allocate your money towards. The key principles will likely be organized around Modern Portfolio Theory (MPT) [8].
The MPT basically says that you should consider your investments as a bundle. Your investment firm doesn’t invest your money in any one product, rather a basket of financial products: hence the idea of portfolio. Taken together, all the financial products in your investment portfolio each have a risk (you might not get your money back) and a return (you get your money back plus more) but overall, your basket of investments together aims for asymmetric return – low risk of loss, high return.
Some of the assumptions of MPT are being challenged these days. For example, the assumption that all investors want to minimize risk – impact investors may seek out higher risk but the basic principle of holding a portfolio of mixed investments is still prevalent.
The existence of a common way of organizing investment for a single investor, when multiplied across numerous different investors in many different places through lots of different investment advisers, enables a way for difference to find common ground.
In MPT there is an assumption that the whole investment world can be considered as a single efficient market. Efficient here means that prices accurately convey the true value of a company’s shares, bonds, or other financial instruments.
When prices are true it means that any single investor couldn’t beat the market. That single investor couldn’t find out some secret information that other investors don’t know and therefore give that investor an advantage when buying or selling financial products, because there couldn’t be any secrets in transparent pricing [8]. MPT assumes that prices ‘tell it like it is’. If you are reading this, you will have plenty of evidence that this is just not the reality that we live in. Prices don’t reflect value and insider trading scandals appear in our news.
Regardless, the concept that price could transparently demonstrate value is a kind of glue that allows money exchange to take place. Because without this, there would be a problem of how to do exchange in real life.
Within MPT is also a notion of ‘risk’. Risk has many meanings, and two common meanings are the chance of losing the money you invested; and a statistically defined number that gets labelled ‘volatility’. The higher the ‘volatility’ the higher the risk.
When risk is said to be high, then you (as the risk minimizing, return maximizing investor) would demand a ‘risk-premium’. “I’m taking on a lot of risk here”, you would say, “so I want a higher return to compensate me for doing that”. An individual, or a company, or a government could respond to this by offering you priority. “Don’t worry,” they could say, “if it all goes wrong, we will pay you back first”.
So now a hierarchy has been made – you get paid back first, and others like workers, customers, citizens, forests, oceans, the environment get paid back second, or third, or last… or not at all. An agreement has been made, enabling a financial transaction.
These concepts of value, price, risk are repeated in millions of daily decisions about how to distribute money – and these decisions have effects. Some companies get loans and some don’t. Some countries pay risk premiums and some don’t. The repetition of these idea in practice generates a sense of structure: a sense of organisation, and certainty.
Who’s Really Involved?
In the end, all of us.
World Bank and the International Monetary Fund, Bank for International Settlements (the so-called Bretton Woods institutions), country groupings such as the G20, or ASEAN, the raft of United Nations organizations as well as UNFCCC funds, governments, regional multilateral development banks, international donors and philanthropists, Financial Stability Board, the Bank for International Settlements, the International Organization of Securities Commissions, the International Accounting Standards Board and the Financial Action Task Force; corporations, international charities, central banks, private banks, building societies, saving schemes, pension funds, small businesses, micro businesses, insurance companies, venture capitalists, equity funds, national development bank, local charities, credit associations, households, individuals.
The first thing you might be thinking is… “that’s too many”.
Agreed. I’m arguing here that we are all involved whether we realise it or not.
You might reply that some of the above aren’t even ‘financial’ players. The World Health Organization is an agency of United Nations, but is it really a financial player? It keeps telling a story that it has ‘no money’ after all.
I’d argue that even though the WHO as ‘health’ as an outcome, WHO itself is a financial player – it lobbies for member subscriptions, accesses global climate funds like the GCF, works across government donors and philanthropists to create trust funds for specific causes, and advocates for increased funds into health and medical areas of work.
You might still be thinking – “but households and individuals, that’s personal finance, not corporate or other kinds of finance, its local and personal not global and international”.
Precisely and that’s the point, isn’t it? When faced with such massive diversity, our instinct is to deal with difference by cutting it down, chopping it up, and allocating it to different categories, like global or local, corporate or personal. By doing that we can then believe a category or niche or spheres are somehow ‘separate’. So then we can have a category called ‘global’ that is separate from – doesn’t influence other categories, like one labelled personal finance, for instance.
With separation, different niches can develop their own language, own special ways of working and doing, their own ways of packaging money. And there could even be a point in time where we forget that in the end, it’s all money. In 2005, bankers were talking a language of credit and credit derivatives that was hard for outsiders to understand, excluding talk of social context and the human borrower at the end of the securitization chain [9]. And that’s when the ‘financial crisis’ of 2008 happened, to remind us that money is a connector.
And so…
I started this blog because I couldn’t connect what I was hearing in online meetings and reading in documents with the grassroots reality that I was seeing and hearing in the health systems of Cambodia, Laos, and Vietnam. I realise now that the way we talk about finance contributed to that sense of dislocation and disconnection by using metaphors of separation and division.
The metaphor of finance as an architecture is misleading and given the digital age we live in, at least talking about finance as ‘global financial networks’ generates a metaphor of connectivity with which to talk and think about financing.
Networks close the conceptual gap between actions taken over ‘there’ that influence actions taken over ‘here’. Millions of financial transactions taking place 5000 miles away might seem irrelevant to where you are and where I am right now. But they are. It is relevant and real when your budget is in deficit and you have to decide what not to do because there’s a measles outbreak that has to be faced right now. Or local health centers didn’t get the requested budget allocation so have to juggle the money they have. These situations don’t happen by accident, nor in the end, design.
Rather are accumulations of many other decisions and actions taken throughout financial networks close by and far away, now in the present moment, as well as historically.
References
[1] Kotzias et al (2023) Reform Of The International Financial Architecture – A Primer GermanWatch
[2] United Nations (2023) Our Common Agenda Policy Brief 6 Reforms to the International Financial Architecture
[3] Gwaindepi et al (2024) Reform Of The Global Financial Architecture In Response To Global Challenges. How To Restore Debt Sustainability And Achieve SDGs? In Depth Analysis Requested by the DEVE committee of the European Parliament; European Union
[4] Gul et al (2023) Everything, Everywhere, All At Once How Can Private Finance Be Unlocked For Nature And Climate In The International Financial Architecture? Centre for Sustainable Finance, University of Cambridge
[5] UNCTAD (2024) Digitalization Trends and the Material Footprint https://unctad.org/system/files/official-document/der2024_ch02_en.pdf
[6] iNews (2019) How Much Space Junk is There in Earth’s Orbit? https://inews.co.uk/news/science/space-junk-map-debris-earth-where-how-clean-up-337880
[7] de Goede, M (2021) Finance/security Infrastructures Review of International Political Economy https://doi.org/10.1080/09692290.2020.1830832
[8] Ortiz, H (2021) A Political Anthropology Of Finance: Studying The Distribution Of Money In The Financial Industry As A Political Process Anthropological Theory https://doi.org/10.1177/1463499620951374
[9] Tett, G (2009) Fool’s Gold: How Unrestrained Greed Corrupted a Dream, Shattered Global Markets and Unleashed a Catastrophe Abacus, London