## Toward a More Stable International Monetary System, Opening Remarks by Dominique Strauss-Kahn, Managing Director, IMF

_IMF News, February 10, 2011_

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## Bibliographic details
- Published: February 10, 2011

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### Context and purpose
- Event: Lecture and Discussion: "Towards a more stable international monetary system"
- Location and date: Washington DC, February 10, 2011
- Speaker: Dominique Strauss-Kahn, Managing Director, International Monetary Fund
- Goal: Set out key questions guiding the IMF’s work on international monetary system reform and to invite discussion on policy responses to volatility and systemic risk.

### Central diagnosis: volatility as the core problem
- The international monetary system involves reserve currencies, exchange rates, capital flows, and the global financial safety net.
- Main concern: volatility—money flows that are "too volatile" and an unstable external environment that impedes prosperity.
- Recent history:
  - The U.S. dollar served as a safe haven asset during the crisis.
  - Extraordinary international policy cooperation was required to avert a far worse outcome in 2008.
  - The recovery is underway but "is not the recovery we wanted": unemployment remains at record highs and income inequality is widening.
  - Global imbalances have returned, including large and volatile capital flows, exchange rate pressures, and rapidly growing excess reserves.

### Question 1 — How can we strengthen policy cooperation?
- Observations and measures:
  - The G-20’s Mutual Assessment Process (MAP) is an important first step toward a more permanent framework for global policy cooperation.
  - IMF surveillance is a critical complement to the MAP and central to the IMF’s mandate.
  - Steps already taken include early warning and vulnerability exercises.
  - Increased focus on cross-border impact of countries’ policies, particularly for the five most systemic economies, with new dedicated "spillover reports" in preparation.
  - Deeper analysis of macro-financial linkages is underway.
  - Countries representing the world’s 25 most systemic financial systems have agreed to mandatory Financial Sector Assessment Programs (FSAPs), facilitating efforts to detect dangerous system-wide risk build-ups.
  - The IMF is conducting a major review to explore whether more ambitious changes to surveillance are needed.

### Question 2 — How best to cope with capital flow and exchange rate volatility?
- Trends and risks:
  - Over the past decade, there has been a dramatic increase in the size and variability of capital flows.
  - Capital flows are broadly beneficial but can complicate macroeconomic management and threaten financial stability, especially in economies with shallow financial sectors.
- Policy toolkit and trade-offs:
  - Policymakers can use macroeconomic adjustment, reserve accumulation, prudential measures, and, in some cases, capital controls.
  - Domestic responses can generate cross-border spillovers.
  - Members have asked the IMF to examine whether globally agreed "rules of the road" for managing capital flows are warranted; concrete ideas are expected to be presented in the near future.
- Exchange rate issues:
  - Exchange rates sometimes show large and persistent deviations from fundamentals.
  - Potential mitigation: increasing the use of the SDR as a unit of account to provide a buffer from exchange rate volatility.

### Question 3 — How can we enhance liquidity provision in times of extreme volatility?
- Current progress:
  - Since the crisis, the global financial safety net has been strengthened: the Fund’s resource base has been increased and the financing toolkit broadened, including the Flexible Credit Line and the Precautionary Credit Line.
- Remaining challenges:
  - Many countries remain unconvinced that the global financial safety net is adequate, leading to continued costly reserve accumulation in excess of precautionary needs.
- Options to improve systemic liquidity provision:
  - Strengthen partnerships with regional financing arrangements.
  - Improve the predictability of systemic liquidity provision rather than leaving it predominantly to national central banks.
  - Better gauge the adequacy of precautionary reserves and develop appropriate benchmarks.

### Role of the SDR (Special Drawing Right)
- Ideas presented in an IMF paper published the same day include:
  - Increasing the global stock of SDRs to help meet countries’ demand for precautionary reserves.
  - Using the SDR to price global trade and denominate financial assets to provide a buffer from exchange rate volatility.
  - Issuing SDR-denominated bonds to create a potentially new class of reserve assets.
- Currency composition considerations:
  - Adding emerging market currencies—such as the renminbi—could aid the internationalization of these currencies and benefit the system.
- Technical and institutional hurdles:
  - Ensuring SDR allocations are used in ways consistent with global macroeconomic stability.
  - Facilitating trading of SDR-denominated assets.
  - Increasing the SDR’s role would require a major leap in international policy coordination; evolution is expected to be gradual and tied to changes in the global economy.

### Conclusions and outlook
- The international monetary system’s issues are wide-ranging and complex; the global debate is only beginning.
- Addressing these issues is directly connected to achieving a well-balanced and sustainable recovery and to preventing future crises.
- The speaker looks forward to continued discussion and input on these themes.

*Opening Remarks by Dominique Strauss-Kahn, Managing Director, International Monetary Fund, February 10, 2011*

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## Content in this bundle

- [010711pdf (PDF)](/-/media/websites/imf/imported/external/np/pp/eng/2011/_010711pdf.pdf){rel="external" type="application/pdf"}

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## References

- [Special Drawing Rights (SDRs) -- A Factsheet](https://www.imf.org/en/about/factsheets/sheets/2023/special-drawing-rights-sdr)
- [IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)
- [Speeches](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [Dominique Strauss-Kahn](https://www.imf.org/external/np/omd/bios/dsk.htm)
- [Towards a more stable international monetary system](https://www.imf.org/external/np/seminars/eng/2011/ims/index.htm)
- [IMF Managing Director Calls for Strengthening the International Monetary System](https://www.imf.org/external/np/sec/pr/2011/pr1136.htm)
- [IMF Executive Board Concludes the Meeting on Enhancing International Monetary Stability—A Role for the SDR?](https://www.imf.org/external/np/sec/pn/2011/pn1122.htm)
- [Enhancing International Monetary Stability—A Role for the SDR?](https://www.imf.org/external/pp/longres.aspx?id=4523)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/sp021011_