Correspondencia

INTERNATIONAL MONETARY FUND Reserve Accumulation and International Monetary Stability Prepared by the Strategy, Policy and Review Department In collaboration with the Finance, Legal, Monetary and Capital Markets, Research and Statistics Departments, and consultation with the Area Departments Approved by Reza Moghadam April 13, 2010

Contents

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I. Introduction............................................................................................................................2  II. Reserve Accumulation: Causes and Effects ..........................................................................4  A. Symptom of Imperfections in the System .................................................................5  B. Negative Impact........................................................................................................8  C. An Alternative View?..............................................................................................12  III. Mitigating the Demand for Reserves .................................................................................13  A. Precautionary Reserves Adequacy..........................................................................13  B. Reducing Underlying Volatility ..............................................................................14  C. Reducing Non-Precautionary Accumulation of Reserves .......................................16  IV. Diversifying the Supply of Reserve Assets .......................................................................17  A. Scope and Feasibility of a Multi-PolarSystem .......................................................18  B. Supranational Reserve Assets .................................................................................20  V. Conclusion and Issues for Discussion .................................................................................28  Bibliography............................................................................................................................30  Figures 1. Ideas to Mitigate Demand and Diversify Supply of Reserves for IMS Stability...................4  2. Global Reserves .....................................................................................................................5  3. Annual Change in Capital Flows, SelectedEMEs.................................................................7  4. The Dollar in the World .........................................................................................................8  Boxes II.1. Reserve Accumulation from 2000-2010 and Beyond ........................................................6  II.2. The Dollar as a Store of Value: A Summary of Views ....................................................11  IV.1. Systemic ExchangeRate Arrangements .........................................................................19  IV.2. EM Assets as Substitutes for Reserves? .........................................................................21  IV.3. Substitution Account ......................................................................................................25  IV.4. Composition of the SDR Basket.....................................................................................26 

2 I. INTRODUCTION1 1. The issue. The last comprehensive discussion of reform of the international monetary system (IMS)—the set of official arrangements that regulate key dimensions of balance of payments—international reserves, exchange rates, current payments, and capital flows—was held nearly four decades ago. In lightof repeated and costly international financial crises since then, it is timely to review the structure of the IMS to assess how it can be strengthened and made more resilient. At issue is the confluence of, on one side, an unprecedented buildup in global current account imbalances and volatile cross border capital flows, accompanied by a sharp build-up of international reserves, and on the other...