August 28, 2010IMF's Lipsky-Reserves may be unable to meet needs
There is some question about whether existing currency reserves can meet the demands of nations gathering reserves, the International Monetary Fund's First Deputy Managing Director John Lipsky said on Saturday.
"With concerns rising about sovereign balance sheets, however, there may be limits regarding how far existing reserve assets will meet the needs of reserve accumulators," he said, speaking at a Federal Reserve conference.
Lipsky said the U.S. dollar's role in meeting demand for reserves was not in question, but that there might be room for a gradual move to provide alternatives.
"There is no doubt regarding the dollar's dominant role for years to come," he said.
"But an evolutionary process toward increased (IMF Special Drawing Rights) use could be feasible and worthwhile. More frequent SDR allocations could expand the pool of such assets available for external financing," he added.
Some economists see the massive accumulation of currency reserves by exporters like China as one of the causes of the recent global financial crisis.
The reserves were often reinvested in U.S. dollar assets, which helped keep U.S. interest rates low and, along with weak lending oversight, fueled the U.S. housing bubble.
The IMF has called upon the its member nations to increase the amount of capital it can deploy in times of crisis. The Fund 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.
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