The Debate on the International Monetary System

By Isabelle Mateos y Lago, Rupa Duttagupta, Rishi Goyal

November 11, 2009

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Isabelle Mateos y Lago, Rupa Duttagupta, and Rishi Goyal. The Debate on the International Monetary System, (USA: International Monetary Fund, 2009) accessed September 18, 2024

Summary

This paper considers options to address concerns related to functioning of the International Monetary System. 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. On the demand side, the paper 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, however, may gain realism and practical relevance if more incremental efforts at strengthening the current system fail.

Subject: Central banks, Currencies, Exchange rates, Foreign exchange, International monetary system, Money, Reserve assets, Reserve currencies

Keywords: Central bank, Currencies, Dollar asset, Exchange rates, Global, International monetary system, Lender of last resort, Market SDR rate, Private sector, Reserve assets, Reserve currencies, SDR assets, SDR component currency, SDR market, SDR-denominated reserve asset, SPN, U.S. dollar

Publication Details

Pages:

25
Volume:

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DOI:

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Issue:

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Series:

Staff Position Note No. 2009/026
Stock No:

SPNEA2009026
ISBN:

9781462331369
ISSN:

2617-6742

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