Strengthening the Global Monetary System: then and now Prof. - - PowerPoint PPT Presentation

Strengthening the Global Monetary System: then and now

• Prof. Catherine R Schenk

Challenges for International Monetary System

• Volatile commodity prices
• Spill‐over Effects from USD volatility
• Divergent inflation prospects
• Role of capital markets in financing development
• Vulnerability to volatile capital flows
• Challenges of policy reform in a period of low

growth/recession (conservatism, economic nationalism)

New International Economic Order

May 1974

• Broaden governance of international economy
• “Ensuring that one of the main aims of the

reformed international monetary system shall be the promotion of the development of the developing countries and the adequate flow of real resources to them”

• “Securing favourable conditions for the transfer
• f financial resources to developing countries”
• 1979 ODA/GDP of Developed Countries = 0.34%

Failed Reform Proposals

• New Bretton Woods Conference
• Substitution Account (1973‐1981)

– Promote the SDR – Reduce reliance on USD

• Rules based adjustment process

– Reserve indicators, symmetrical sanctions

• Tobin Tax: FX volatility, proceeds for

deveopment

• Governance: NIEO, G77, C20, G24

Actual Reforms

• Regional monetary solutions (EMS)
• Safety‐net to manage decline of sterling (BIS)

– International cooperation to manage reserves (equiv £120 billion overlapping credits)

• Coordinated multilateral and bilateral swaps
• ‘Recycling’ global imbalances through

international financial markets

– Sovereign Debt Crisis of 1980s

• Increase IMF resources and access
• G7 Efforts to Coordinate Exchange Rate

intervention (Plaza and Louvre Accords)

‘Lessons’ from History

• Blurring public/private responsibility = moral hazard
• Moving target(s) of reform during instability

– Need to coordinate LT and ST interventions and reform (e.g. QE)

• Requires consensus building

– Leadership: Reluctant, Unable, Unwilling? – Shared interests of developing countries?

• Environment of reform matters

– SDR reform killed off by inflation, USD rebound

• Flexible, informal arrangements may be better than

grandiose systemic reforms

• No amount of owned reserves is enough for any single

country to buck the market

Prospects

• Transitional period of governance: sclerosis
• Regional solutions: may exclude poorest

countries

• Enhanced SDR: liquidity, secondary market,

invoicing: longer term prospect

• Multiple currency system: ‘resilient’ USD,

‘persistent’ Euro, ‘emergent’ RMB

– Spread the benefits and burdens of international currency – Increase interdependence among largest economies – Enhance prospects of coordination