International Liquidity and the Role of the SDR in the International Monetary System

Author/Editor:

J. J. Polak ; Peter B. Clark

Publication Date:

December 1, 2002

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper describes how the changed conditions in the international monetary system have undermined the role originally envisaged for the SDR. It argues that the concept of a global stock of international liquidity, which was fundamental to the creation of the SDR, is now no longer relevant. Nonetheless, there are good reasons to satisfy part of the growing demand for international reserves with SDR allocations: (i) there are efficiency gains, as SDRs can be created at zero resource cost, and thus obviate the need for countries to run current account surpluses or engage in expensive borrowing to obtain reserves, and (ii) there would be a reduction in systemic risk, as SDRs would substitute to some extent for borrowed reserves, which are less reliable and predictable source of reserves, especially in times of crisis.

Series:

Working Paper No. 02/217

Subject:

English

Publication Date:

December 1, 2002

ISBN/ISSN:

9781451875126/1018-5941

Stock No:

WPIEA2172002

Price:

$15.00 (Academic Rate:$15.00)

Format:

Paper

Pages:

29

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