The Debate on the International Monetary System

IMF Staff Position Note SPN/09/26

Published in Boorman, Jack T. and Andre Icard, eds., 2011, "Reform of the International Monetary System: The Palais Royal Initiative," Sage Publications.

Published in Blanchard, Olivier and Il SaKong, eds., 2010, "Reconstructing the World Economy: Papers Presented at a Joint Conference of the Korea Development Institute and the International Monetary Fund," Washington, DC: IMF.

25 Pages Posted: 22 May 2019

See all articles by Isabelle Mateos

Isabelle Mateos

Independent

Rupa Duttagupta

International Monetary Fund (IMF)

Rishi Goyal

International Monetary Fund (IMF)

Date Written: November 11, 2009

Abstract

The global crisis resurrected deep-rooted concerns about the functioning of the international monetary system (IMS). Despite its relative stability, the current “non-system” has the inherent weaknesses of a setup with a dominant country-issued reserve currency, wherein the reserve issuer runs fiscal and external deficits to meet growing world demand for reserve assets and where there is no ready mechanism forcing surplus or reserve-issuing countries to adjust. The problem has amplified in recent years in line with a sharp rise in the demand for reserves, reflecting in part emerging markets’ tendency to self-insure against costly capital account crises. This paper considers options to address these tensions, thereby contributing to the ongoing debate on strengthening the international monetary system. On the demand side, it explores alternative insurance arrangements that could mitigate the precautionary demand for reserves. On the supply side, it assesses a menu of alternative reserve assets that could offer sustained stability and efficiency. Many of the proposals presented would require fundamental changes in the forms and degree of international cooperation, but may gain realism and practical relevance if more incremental efforts at strengthening the current system fail.

Keywords: international monetary system, reserve currencies, country insurance, SDR, dollar, bancor, IMF

JEL Classification: F3, F31, F33

Suggested Citation

Mateos, Isabelle and Duttagupta, Rupa and Goyal, Rishi, The Debate on the International Monetary System (November 11, 2009). IMF Staff Position Note SPN/09/26, Published in Boorman, Jack T. and Andre Icard, eds., 2011, "Reform of the International Monetary System: The Palais Royal Initiative," Sage Publications., Published in Blanchard, Olivier and Il SaKong, eds., 2010, "Reconstructing the World Economy: Papers Presented at a Joint Conference of the Korea Development Institute and the International Monetary Fund," Washington, DC: IMF., Available at SSRN: https://ssrn.com/abstract=3147836 or http://dx.doi.org/10.2139/ssrn.3147836

Isabelle Mateos

Independent ( email )

Rupa Duttagupta

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-8583 (Phone)
202-589-8583 (Fax)

Rishi Goyal (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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