The Limits of Free Movement of Capital: The Status of Customary International Law of Money

Abstract

The legal framework surrounding globalization is far from clear. Globalization is inextricably linked to the idea of free movement of capital vis-à-vis states’ restrictions. The leading approach in international law argues that states have the ultimate right to regulate their money. Invoking the Serbian Loans case, this approach opines that the default rule is ultimate monetary sovereignty for states in customary international law of money. On the other hand, the hyperbolic rhetoric of globalization celebrates the victory of neo-liberalism including free flow of capital. A multitude of international treaties restricting states’ monetary sovereignty mainly in the last two decades is employed as an attestation of this victory. Invoking these treaties, the second approach concludes that free movement of capital has become the default rule in customary international law of money. This Article, however disagrees with both schools of thought. By showing the shortcomings of both approaches, this Article calls the current period the Fragmented State of Monetary Sovereignty, in which neither monetary sovereignty nor free flow of capital determines the default rule in customary international law. It starts off by laying out an overview of the status of monetary sovereignty versus free movement of capital from the interwar period until the present time. In the second section the Article puts forward the structural limitations on free movement of capital as carved into the edifice of today’s international trade law. Section III depicts the formidable limitations in investment law, albeit the unrestricted language of investment treaties. Subsequently, Section IV investigates economic sanctions as a major hindrance to free flow of capital. The Article concludes that despite the rhetoric on the triumph of neo-liberalism, legally speaking, one of its basic tenets (i.e. free flow of capital) still has a long journey to surpass the present limitations.

Keywords: International Economic Law, Free Movement of Capital, International Investment Law, Trade Law