The Bank for International Settlements: Evolution and Evaluation

Published by EH.NET (July 2003)

James C. Baker, The Bank for International Settlements: Evolution and Evaluation. Westport, CT: Quorum Books, 2002. xvi + 259 pp. $64.95 (hardcover), ISBN: 1-56720-518-6.

Reviewed for EH.NET by A.M. Endres, Department of Economics, University of Auckland.

The purpose of this book is to outline the history of the Bank for International Settlements (BIS) and provide an evaluation of its operations from the 1930s to the present. The BIS is one of the oldest international organizations in existence and certainly the oldest international financial institution. As with other international organizations created in the interwar period the BIS was established to foster international monetary cooperation, with its services rendered to national central banks.

James Baker’s objective is to discuss and analyze the history, administration and operations “in general” (p. 3) of the BIS. The original purpose of the BIS — “the coordination and settlement of Germany’s World War I reparations payments” — was only incidental to later objectives as explained in Chapter 1. Changes in the BIS organization and financing since 1930, including details of changing membership, its financial operations, and its day-to-day functions are then explained. The BIS now acts as a bank for central banks; 49 central banks are now BIS members including the U.S. Federal Reserve System, which joined belatedly in 1994. The author covers such topics as BIS committees and research contributions; the BIS role as an international supervisor of national banks including its contribution to harmonizing banking regulations across countries; the Basel Accord on bank capital adequacy principles; the BIS role in international payments systems and settlements including its new-found functions in dealing with modern financial derivatives; the relationships between the BIS and central banks and other international financial institutions such as the World Bank and IMF; the BIS’s role in counteracting later twentieth century currency crises; and the evolving BIS role in formulating standards for, and supervising, insurance operations . There is also a separate, ‘catch-all’ chapter on “Research and Miscellaneous Activities” which does very little work for the author and leaves the reader puzzled as to why so much space is devoted to BIS committee work on such things as the Y2K problem (chapter 11). Chapter 12 promises to generate more reader interest because it deals with the controversial part played by the BIS in laundering Nazi gold during 1939-1945. However, while it is asserted that “history shows that the BIS did, in fact, enter into illegal transactions in gold” (p. 215) during the Second World War, there is very little historical documentation presented to support the argument. Tables in Chapter 12 on gold transactions of the Reichsbank and gold shipped to Swiss commercial banks by the Reichsbank prove nothing at least as far as the alleged illegality is concerned.

Serious scholars may be interested in deeper issues related to the evolution of international financial institutions such as the BIS — its administrative structure, the doctrines informing its actions, its technical functions, and the extent to which it achieved its substantive objectives. The BIS emerged over time as a major international organization charged with the task of increasing “the efficiency of regulatory and supervisory efforts aimed at improving the international banking system” (p. 25) and it ultimately claimed a major place in world financial affairs; it became part of the international cooperative effort post 1945 to ensure the stability of the international financial system. This book does not really succeed in explaining how the BIS successfully carried out its functions. To be sure, Baker deals with his subject matter in a manner accessible to a wide readership. All this may be the book’s main virtue. Serious scholars and experts in international financial affairs will not be satisfied. The author’s sources are invariably journalistic: for example, The Banker; The Economist; The Wall Street Journal; Time; The New York Times; Newsweek; Euromoney; Asia Business and countless internet sites referring to material dealt with in each chapter and acting as documentary support. Baker does not gather from these sources much more than a pastiche of topical materials none of which explains precisely how the BIS rendered the international financial system more stable and efficient. While it is admitted that the “BIS did not open its archives until the 1990s” (p. 221), I find no evidence in this book that the BIS archives have been consulted. Research on the important topics treated in this book cannot be conducted effectively by browsing internet website pages.

Baker’s overall argument is that the BIS has evolved with changing circumstances and helped create international financial order. The BIS has remained relevant; it “has expanded from a regionally oriented agency to a financial institution with global outreach” (p. 241). While it has not been successful acting jointly with other international organizations in solving regional economic and currency crises, it has been a focal point for cooperative efforts among central banks that supplemented IMF and World Bank action. Baker praises the BIS for its reputation as a pre-eminent economic forecaster and disseminator of financial data, for its efforts in reducing Y2K problems, for coping with technical innovations in international finance and insurance, for encouraging transparency in financial transactions across national borders and for dealing with international money laundering. It is not clear why most of the achievements could not be brought within the ambit of private, international commercial banks. Most financial, insurance and related arrangements and regulations have been harmonized spontaneously within the European Monetary Union and, even earlier, within the United States of America and so forth, without the need for such organizations as the BIS. The BIS is revealed to be a rather closed club for central bankers increasingly without clear lines of accountability to national governments. It is now essentially an international service organization offering no good reasons for closing its shareholder register in 2001 to private investors. Baker reports this development directly from a BIS “Press Release 2001” and, as with many other institutional arrangements discussed in this book, he takes the matter as settled. In short he remains far too uncritical of key decisions and functions of the BIS.

Altogether this is a disappointing book. A systematic, comprehensive study of the evolution of the BIS since its inception has yet to be produced.

A. M. Endres is Associate Professor of Economics at the University of Auckland. Recently he has published (with G. Fleming) International Organisations and Economic Policy, 1919-1950 for the Cambridge University Press “Historical Perspectives on Modern Economics” series. He is currently engaged in preparing a book entitled Leading Architects of the International Financial Order from Bretton Woods to the 1970s for the Routledge “International Studies in Money and Banking” series.