7. Governance of the international monetary, financial and trade systems

NEW YORK Both China and the United Nations Commission on Reforms of the International Monetary and Financial System have called for a new global reserve system. That issue should be at the top of the agenda when the IMF s International Monetary and Financial Committee next meet.

The issue is not merely one of fairness. According to the Belgian economist Robert Triffin, an international monetary system based on a national currency is inherently unstable, owing to the resulting tensions among the inevitably divergent interests of the issuing country and the international system as a whole.

Such a new platform should also be used to work towards structural reform of the international monetary system aimed at reducing its excessive reliance on the US dollar as a reserve currency. Such reforms should work towards developing a multilaterally agreed multi currency reserve system or even, in the longer term, a world currency based on the Special Drawing Rights issued by the IMF.

Second, precious metals do not resolve the problem of inflation. And, finally, the anchor currency and the underlying eco system of world trade often outlive the geopolitical decline of the anchor country by decades.

The deficiencies of current arrangements are why the world monetary system should be based on a truly global reserve currency a fiduciary currency backed by the world s central banks. This is what was hoped for when SDRs were created in the 1960 s, and this process must be completed by transforming the SDRs into such a global currency.

Addressing systemic issues enhancing the coherence and consistency of the international monetary, financial and trading systems in support of development

The International Monetary Fund perceives a society for all ages in terms of its systemic and fiscal implications for individual countries and for the global monetary and trading systems.

This continued vulnerability reflects a collective failure to reform the global monetary system an imperative that People s Bank of China (PBOC) Governor Zhou Xiaochuan highlighted in early 2009. Per Zhou s proposal, China has championed a transition to a multi currency reserve system, in which the SDR and an internationalized renminbi would be used more widely, including in countries currency reserves.

Addressing systemic issues enhancing the coherence and consistency of the international monetary, financial and trading systems in support of development

The question is is this anything like human money?

A single monetary policy for a currency area comprising 11 and later 12 countries, each with a sovereign national government, was something entirely new. Would it be compatible with autonomous national fiscal policies?

African Centre for Monetary Studies

Whether or not the renminbi is added to the SDR basket this October, a gradual transformation of the global system to accommodate China seems all but inevitable.

To that end, we should all strive to achieve greater coherence among the international trading, monetary and financial systems.

He is a former Managing Director of the International Monetary Fund and has served as Chairman of the Paris Club and Chairman of the Monetary Committee of the European Economic Community.

As the United States dollar strengthened against nearly all major currencies, the overall currency effect on the Fund was negative in United States dollar terms.

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Like most of our money, it's just a piece of metal.

For example, Poland and the Czech Republic have seen their currencies go up by close to 30 and 15 , respectively. Major countries also have undergone currency appreciations 30 for Japan and 15 for China.

The International Monetary Fund (IMF) participated in the Conference and its preparatory process with a series of substantive inputs.

International Monetary Fund (IMF)

Meanwhile, China has asked the International Monetary Fund to include the renminbi in the basket of currencies comprising Special Drawing Rights, the Fund s unit of account. That is an outcome that the rest of us should welcome, because it would give China a greater stake in a multilateral institution that oversees the operation of the global monetary system.

Question on regulating the activities of alternative money transfer systems.

Indeed, one might legitimately question whether we have a system at all, at least compared to the Bretton Woods arrangements and, before that, the seeming simplicity of the gold standard. No one today has been able to exert authority systematically and consistently, and there is no officially sanctified and controlled international currency.

One of the major shortcomings of the global trading system in recent decades has been the absence of an effective constraint on countries that intervene heavily in order to keep their currencies undervalued. A significantly undervalued currency implies a potentially large trade surplus.

Regling also revealed that there is now increased and frequent coordination between monetary authorities in the United States, Germany, and China, drawing attention to the fact that the old Triad of the dollar, euro, and yen may now have been replaced by a new Triad of the dollar, euro, and Chinese renminbi. While Regling spoke of an emerging multipolar monetary system, his remarks clearly indicated the functioning of a tripolar system.

Recently, UNDP had signed an agreement with the International Monetary Fund (IMF) to strengthen their relationship.

But Volcker has also been a prominent critic of the dangers of currency volatility. What is the link between nostalgia for a simplified and less risky banking sector and the wish to reintroduce a currency system that also seems a relic of the past?

Given the role of the US dollar as the dominant global currency, the Fed s expansionary monetary policy generates significant externalities for the rest of the world effects that the Fed is certainly not taking into account. The basic problem is that there are essential imperfections in an international monetary system that is based on the use of a national currency as the world s main reserve currency.

For a given supply of money, an increase in the production of goods will increase the value of a currency, because each unit will buy more goods. Likewise, increasing the supply of money relative to a fixed amount of output will lead to a decline in the purchasing power of money, as each currency unit buys fewer goods.

As it is, the valuation of a country s currency is not so much determined by the performance of its economy as by the forces of supply and demand on foreign exchange markets. For a given supply of money, an increase in the production of goods will increase the value of a currency, because each unit will buy more goods.

In hindsight, it was a mistake to believe in the euro s spontaneous community creating power. Though there clearly is a link between currency areas and political communities (consider the dissolution of the ruble zone at the time of the Soviet Union s collapse), it is political community that creates the solidarity needed to foster currency linkages, not vice versa.

The meetings focused on the structural features of the international monetary, financial and trading systems, the potential vulnerabilities they posed for developing countries and the institutional design of the international financial system.

Close relations are maintained with IMF and the Inter American Development Bank (IDB).

Transparent management of the international financial, monetary and trading systems was essential to the eradication of poverty and the creation of fresh prospects for the developing countries.

Measures should also be taken to broaden cooperation among monetary authorities in order to maintain a sound international financial system.

Monetary Mystification

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