Abstract
This chapter reviews some of the current debates on the reform of the international monetary system. Despite its deficiencies, the United States (US) dollar will remain the dominant currency and special drawing rights (SDR) cannot serve as either an international medium of exchange or a reserve currency. The International Monetary Fund (IMF) has changed its position to accept capital controls under certain circumstances. Refining control instruments better tuned to present day markets may bring about greater acceptance. The 2008–2009 global financial crisis has dimmed much of the earlier hope for the multilateralized Chiang Mai Initiative. The currency swap arrangements portend a new form of international cooperation. Finally, for the Group of Twenty (G20) to matter, the systemically important countries need to ensure the stability of their financial systems and economies.
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Notes
- 1.
Hahm et al. (2010) use disaggregated series by noncore liabilities in the Republic of Korea to find that, relative to core liabilities, noncore bank liabilities are more procyclical on various measures.
- 2.
- 3.
This point is also made by Calvo (2010).
- 4.
Banks sometimes fund their long-term won–dollar forward positions by borrowing dollars short term to avoid the foreign exchange risk. The interest rate differential between home and foreign markets brought about a large increase in short-term dollar loans to finance investments in forward dollars sold by ship builders and other domestic firms in 2011. In response the Republic of Korea’s policymakers imposed limits on currency forward positions by domestic banks to 50 % of their equity capital while restricting foreign banks’ positions to 250 %. On 19 May 2011 the ceiling on the foreign exchange forward position by local branches of foreign banks was cut from 250 % to 200 % and the ceiling for domestic banks from 50 % to 40 %. The new ceilings took effect from 1 June 2011, with a 1-month grace period until 1 July.
- 5.
A recent empirical analysis by Park and Song (2011) shows that among the East Asian economies, the PRC is likely to benefit the least from regional monetary integration.
- 6.
The IMF uses a definition of global liquidity that is a sum of GDP-weighted M2 or reserve money for the four reserve currencies—the dollar, the euro, the yen, and the pound (International Monetary Fund (IMF) 2010). For recent discussions on global liquidity, see also Bank for International Settlements (BIS) (2011) and International Monetary Fund (IMF) (2011a).
- 7.
The Republic of Korea has become one of 14 countries having such a temporary reciprocal currency arrangement with the US.
- 8.
The G7 was more successful as a tool to provide guidance in matters of international institutions, in particular regarding the IMF (its instruments and governance). This also applies to the G20, which has promptly changed voting rights and expanded IMF resources.
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Park, Y.C., Wyplosz, C. (2014). International Monetary Reform: A Critical Appraisal of Some Proposals. In: Kawai, M., Lamberte, M., Morgan, P. (eds) Reform of the International Monetary System. Springer, Tokyo. https://doi.org/10.1007/978-4-431-55034-1_2
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