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Reforming the International Financial System for Development$
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Jomo Kwame Sundaram

Print publication date: 2011

Print ISBN-13: 9780231157643

Published to Columbia Scholarship Online: November 2015

DOI: 10.7312/columbia/9780231157643.001.0001

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Special Drawing Rights and the Reform of the Global Reserve System

Special Drawing Rights and the Reform of the Global Reserve System

Chapter:
(p.314) 13 Special Drawing Rights and the Reform of the Global Reserve System
Source:
Reforming the International Financial System for Development
Author(s):

José Antonio Ocampo

Publisher:
Columbia University Press
DOI:10.7312/columbia/9780231157643.003.0013

This chapter calls for a reform of the international reserve system to address its three fundamental flaws: it has a deflationary bias as the burden of adjustment falls on deficit countries; it has inherent sources of instability associated with the use of a national currency as the major reserve asset and the high demand for foreign exchange reserves by developing countries, due to the pro-cyclical nature of cross-border capital flows and the inadequate availability of “collective insurance”; it exacerbates inequities by transferring resources to reserve currency-issuing countries. The chapter proposes a new system based on the countercyclical issue of Special Drawing Rights (SDRs) to finance International Monetary Fund (IMF) facilities, together with a network of regional reserve funds. It also stresses the need to consider regional monetary arrangements as part of the broader reform of the international monetary system. Finally, it highlights two complementary reforms: placing the IMF at the center of world macroeconomic policy management and rethinking the regulation of capital accounts in light of a reformed global financial system.

Keywords:   international reserve system, foreign exchange reserves, developing countries, Special Drawing Rights, International Monetary Fund, regional reserve funds, regional monetary arrangements, international monetary system, macroeconomic policy, capital accounts

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