Oct 20, 2009
Cut reserves buildup: IMF
MEXICO CITY - THE International Monetary Fund is considering creating a new programme to discourage member countries from building up currency reserves, said John Lipsky, the IMF's first deputy managing director.
'We are exploring the possibility of improving our existing facilities or adding other insurance-like facilities that would give our members greater confidence that they don't need to self insure by building up reserves,' Mr Lipsky told reporters at a conference in Mexico on Monday.
Some economists see the massive accumulation of currency reserves by exporters like China as one of the causes of the global financial crisis, as the reserves were often reinvested in US dollar assets, which helped keep US interest rates low and, along with weak lending oversight, fueled the US housing bubble.
Earlier this month, the IMF called on the Fund's member nations to increase the amount of capital it can deploy in times of crisis by perhaps US$1 trillion (S$1.4 trillion) or more, and it wants to dissuade countries like China from building big currency war chests by convincing them that the IMF could come to their aid in times of need.
In separate comments, Mr Lipsky warned countries not to scale back stimulus measures used to fight the global recession, saying that could jeopardise a return to weak growth next year.
'This is no time to take risks with premature withdrawal of the stimulus,' said Mr Lipsky, who is the IMF's No 2 official.
