Chapter 6 17/3/02 4:52 pm Page 74

CHAPTER 6

Targeting Terrorist Finances: The

New Challenges of Financial
Market Globalization1
Thomas J. Biersteker

Global financial market integration accelerated sharply toward the end

of the twentieth century. The flow of foreign exchange across national
boundaries exceeded $1.3 trillion per day, a figure that surpassed the
foreign exchange holdings of the central banks of all of the OECD
countries combined. During the early 1990s, net capital flows to devel-
oping countries exceeded $130 billion a year, and even following the
Asian financial crisis, direct foreign investment continued to increase
in some of the countries hardest hit by the financial market instability
in East and Southeast Asia.
Even more important than the dramatic increase in the flow of funds
across borders was the conceptual shift that took place within major
institutional actors - from individual currency traders and portfolio
investors to national regulatory officials. There was a major shift away
from a conception of sharply demarcated national financial boundaries
toward a conception of an integrated, global financial market, presenting
investment opportunities and competitive challenges on a global scale.
National attempts to impose effective currency controls, which had
prevailed in most countries from the 1930s well into the 1970s, increas-
ingly gave way to financial deregulation, financial liberalization, the
gradual elimination of capital controls and the introduction of incen-
tives to encourage cross-border financial transactions. The prevailing
imagery was increasingly one of capital 'ricocheting across the globe'
instantaneously, on an around-the-clock, 24-hours-a-day basis.
In many ways, the flows of funds, conceptual shift and movement
toward financial market liberalization approximated a return to the
general patterns and degrees of economic integration prevailing before
the First World War. However, there were some important differences at

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