Thought I'd bump a post I made from January 2011. And, while doing my research, I stumbled across a very interesting pdf file which I have included. IMO, it's worth reading .. "January 2012 Real SDR Currency Board, A Global Currency for a Global Economy".As you know, everyday we get closer to witnessing a huge change with the global monetary system. I just can't figure out if the "powers that be" will let the economy totally crash before instituting a new policy or .. will they pull a hegelian dialectic and save us all in the eleventh hour before the crash? hmmm, just don't know, I guess we wait to see .. kel ..:)
---International Monetary System - Old and New Debates ---
The Reinventing Bretton Woods Committee conference titled "International Monetary System - Old and New Debates" (10-11 December 2010) was a preliminary event under the G20 French Presidency that created a global pathway for debating reforms and discussing opportunities and challenges of the current system.
The purpose of a roadmap for Reinventing Bretton Woods Committee is to coordinate the establishment of a long term focus on issues involving the existing monetary system and propose research and reflections by hosting and co-hosting conferences world over.
This roadmap was constructed to explore a set of issues, guidelines and objectives of RBWC under the G20 French Presidency and is a living document that will be regularly updated over the course of the year. So far, here goes...
France Paris, 2010 - The Reinventing Bretton Woods Conference “The International Monetary System: Old and New Debates” brought together policy makers, leading academics and market participants to provide an assessment of the case for reform of the international monetary system and ideas about how that might be achieved.
Proceedings were divided into eight panels with individual presentations followed by questions and answers and were marked by a wide variety of viewpoints on the case for reform and possible approaches to reform.
Continues ...read more ..
Participants expressed the view on the one hand that the current system had succeeded in promoting sustained international economic integration while on the other hand significant external imbalances and exchange rate volatility had revealed inherent weaknesses.
Participants indicated that the problem of asymmetric adjustment remains the main weakness of the system. The discussion seemed to suggest that the case for reform may be at least in part conditional upon identifying realistic reform options.
Participants outlined as possible reform approaches: targeting of international reserves, strengthening of obligations under Article IV, guidelines for international reserve diversification, bank capital regulation, and an expanded role for the SDR. Participants stressed that most such reform proposals had been discussed in the past but had failed to command international agreement and that reform priorities varied through time.
Causes of crisis
The relationship between the global financial and economic crisis and the international monetary system remains ambiguous. Some panelists warned that unless a clear causal relationship can be established there is a risk that reform initiatives will not receive sufficient political support. However, other panelists saw in persistent imbalances and currency misalignment major sources of instability that strongly contributed to if not caused the crisis. Participants also argued that exchange rate volatility caused bank failures in the U.S. Several stated that the crisis has therefore given new urgency to the need for reform.
Purposes of an International Monetary System
The international monetary system was viewed essentially as allowing free international exchange and an efficient international division of labor while providing a framework for monetary relations between monetary institutions. Panelists argued that the system should be macro-economically neutral, that is, neither inflationary nor deflationary. It was also stressed that the ultimate success of a system will be judged by its ability to generate global economic growth.
Case for reform
The case for reform rested largely on the persistence of large external imbalances and exchange rate fluctuations. Recent announcements of relocations of production facilities by corporations due to exchange rate fluctuations were seen as illustrating deficiencies of the current system. Panellists stressed that the current international monetary system resting on an obligations framework had failed to induce sufficient policy coordination. Panellists remarked that the existing institutions governing the international economy had been established by and were largely run by advanced economies and that despite some reforms these required further institutional change. Panellists warned that economists tend to deal always with the last crisis but many felt that continuation of the current system would lead to recurrent crises.
Reform Options
1.Reserve targeting: It was proposed that countries declare and discuss their objectives for reserve growth to cap external imbalances, with estimated additional reserves to be announced ex-ante and possibly supplied through SDR allocations? In that way countries would be accountable for reserves exceeding established caps and be subject to possible penalties.
2.SDRs: The expansion of the SDR as a reserve asset could be used for transactions with the IMF. The valuation of the SDR basket should be changed to a real basket made of a commodities and/or goods to serve as nominal anchor and for issue of such SDRs to be conducted in ways similar to the rules governing a currency board. The opening of the SDR basket would mean to include other currencies in particular the RMB. SDR could also be used to guide more orderly reserve diversification.
3. Multiple-currency regime: The currency diversification to foster competition among currencies might be conducive to greater payments discipline.
To be credible, new reserve currencies would have to consist of regional currencies and may therefore require some form of further regional integration.
A multiple currency regime would reduce dependence on key currencies and might therefore reduce the susceptibility of the system to currency-specific shocks.
The adoption of such a regime would also facilitate the integration of emerging markets currencies into the system and as such take into account their “aspirations.” As for negative externalities, they could be overcome by agreeing on a common framework – which could also guide orderly reserve diversification.In the past, the transition from sterling as a major reserve currency occurred within a framework of gradually managed diversification supported by coordinated agreements between central banks.
4. Strengthened surveillance: A revised surveillance framework could be adopted where countries adhered to a set of strengthened obligations and norms based on countries’ policy practices and where failure to meet policy obligations triggers possible penalties including financial ones.
For instance, the use of a set of indicators to gauge the adequacy of payments positions with emphasis on the direction of movement rather than the position at any time. This surveillance needs to be multilateral to be effective and that certain automaticity should be established based on the notion of “yellow and red cards.” As much as a system cannot be based on rules alone; it is difficult to enforce any discretionary elements in a framework.
5. Bank regulation: That calls for adoption of a more proactive and country specific bank capital regulation regime to affect more directly the leverage amid the assumed interdependence between bank credit, leverage and exchange rates where capital adequacy will be aligned with exchange rate considerations.
6. Stabilisation of euro-dollar exchange rate: Finally, establishing a band for the euro-dollar exchange rate as an essential anchor for other currencies.
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