Reform of the international monetary system: Some concrete steps

by Jean Pisani-Ferry, Yongding Yu, Agnès Bénassy-Quéré on 28th March 2011

Reform of the international monetary system is under discussion after three decades of apathy. Tectonic shifts in the balance of international power have made reform more urgent. However, in the short term, there is little chance of a grand redesign of the international monetary system.

Nevertheless, concrete steps should be taken. First, consensus is needed on exchange rates, capital flows and reserves. Second, financial safety nets must be improved so that countries do not have to self-insure by accumulating reserves or rely on possible bilateral swap lines to access liquidity.

Third, a change in the composition of the Special Drawing Right should be planned for, to strengthen the multilateral framework.

The most workable short-term deliverables seem to be (i) guidelines on and surveillance of capital controls; (ii) a new regime for deciding on SDR allocations that would facilitate more frequent use of this instrument; and (iii) the inclusion of the renmimbi in the SDR basket. These reforms would be a partial move, preparing the ground for further developments.

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  • sylvain plasschaert 8th April 2011

    To the authors,

    - only six months ago, when revising the composition of the SDR,, the IMF stated that the RMB was still unfit to be included. Now they changed their view.
    - I am finalizing a paper on the ' internationalization of the RMB'. ,, for a conference later this month in Bruges. The proposal about the SDR ( cum the RMB) is only one of the vectors of the process, now in fulll swing. Although China has not yet reached the stage of full convertibility of the RMB.
    Regards,
    Sylvain Plasschaert

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  • Frans Verhagen 29th March 2011

    This policy contribution dealing with the three important monetary areas of capital flows, financial safety net and SDR use presents a realistic reform agenda together with its difficulties of institutionalizing the reforms within the IMF.
    While these reform proposals make sense for discussion at the Brookings Institution 20 and for submission to the G20 Cannes Summit in November, they fall short by not including the long term goal of an equitable, sustainable, and, therefore, stable international monetary system. I think the grand redesign has to be part of short-term negotiations. “We are not in 1944”, but we are in a most precarious global condition on account of the changing climate.
    The International Institute for Monetary Transformation (www.timun.net) has proposed the development of a carbon standard that would not only combat the climate crisis but also advance low carbon and climate-resilient development. This transformed (not reformed) international monetary system would create convertible national currencies or a world currency and a Global Central Bank that would administer, monitor, regulate and create credit and liquidity. It would also create carbon accounts in a nation’s balance of payments so that both carbon and financial imbalances can be settled through this global adjustment mechanism.

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