The creation of the Bank for International Settlements (BIS) in 1929 to deal with the settlement of First World War reparations payments was seen by central banks as an opportunity to put international cooperation on an institutional footing. Their initial vision of what the BIS might achieve in support of the gold exchange standard was ambitious. In the view of Montagu Norman and Hjalmar Schacht, the BIS needed to become a forum not merely for information exchange and for refining the techniques of managing the gold exchange standard, but a truly cooperative organisation capable of providing support to central banks in emergencies and for developing new financial arrangements. This chapter investigates the scope of the Norman-Schacht vision, as well as attempts to put this vision into practice (e.g. through the BIS study committee on medium-term credits, or through the BIS-coordinated interventions in the Austrian banking and financial crisis of May-June 1931). Based on research in the historical archives of the BIS, this chapter assesses whether the Norman-Schacht vision for the BIS failed because of differences in policies and goals among the central banks, or rather because of the disruptive effects of the Great Depression.

This chapter provides an historical account of why the institutional setting of the BIS has been conducive to the emergence of soft law as a critical tool for managing the global financial system. Soft law developed almost naturally at the BIS as a result of the many technocratic issues it was called on to deal with throughout its long history – be it German reparation payments in the 1930s, the management of the Bretton Woods system of fixed exchange rates in the 1960s or growing financial stability concerns in the 1970s and 1980s and beyond. The Basel I Capital Accord, adopted in 1988, was a political and regulatory watershed in that respect – a non-binding code of conduct agreed by an informal committee of experts (the Basel Committee on Banking Supervision), that was subsequently implemented by national legislation in all the main constituencies. The chapter argues that the relative success of soft law in financial regulation owes a lot to the particular set-up and traditions of the BIS. However, it concludes that in order to be successful in future, soft law – much like the BIS – will have to become ever more inclusive and transparent.

It is a commonplace to state that we live in a time of continuous change. But that doesn’t make it any less true. The force and impact of change become all the more obvious when considering a horizon that spans two generations. Fifty years ago, a mere handful of advanced industrial economies dominated the global economy. Since then, a wide array of countries have emerged as new economic powerhouses. Economic development and prosperity are now more equally spread across the globe than at any other time over at least the past two centuries.