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Reforming the Global Reserve Regime: The Role of a Substitution Account

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  • Peter B. Kenen

Abstract

The governor of China's central bank recently revived a proposal for the creation of a ‘substitution account’, managed by the International Monetary Fund (IMF), into which central banks and governments could deposit dollar reserves in exchange for claims denominated in Special Drawing Rights (SDRs), the Fund's quasi‐currency. This paper summarizes simulations that measure the potential cost of such an arrangement to the United States were it to guarantee the solvency of the account. The simulations show that those costs would be small relative to the size of US external assets and of the US economy. The paper also shows how the costs could be shared with the depositors. Creation of a substitution account could make the SDRs the principal reserve asset in the international monetary system, achieving a major reform of the reserve regime and enhancing the role of the International Monetary Fund.

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  • Peter B. Kenen, 2010. "Reforming the Global Reserve Regime: The Role of a Substitution Account," International Finance, Wiley Blackwell, vol. 13(1), pages 1-23, March.
    • Handle: RePEc:bla:intfin:v:13:y:2010:i:1:p:1-23
    DOI: 10.1111/j.1468-2362.2010.01259.x
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    References listed on IDEAS

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    1. Peter B. Kenen, 1994. "Exchange Rates And The Monetary System," Books, Edward Elgar Publishing, number 259.
    2. Gowa, Joanne, 1984. "Hegemons, IOs, and markets: the case of the substitution account," International Organization, Cambridge University Press, vol. 38(4), pages 661-683, October.
    3. Wallich, Henry C., 1980. "The world monetary system after postponement of the substitution account," Intereconomics – Review of European Economic Policy (1966 - 1988), ZBW - Leibniz Information Centre for Economics, vol. 15(4), pages 163-167.
    4. Kenen, Peter B., 2005. "Stabilizing the international monetary system," Journal of Policy Modeling, Elsevier, vol. 27(4), pages 487-493, June.
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    Cited by:

    1. Peter B. Kenen, 2010. "Renovation of the Global Reserve Regime: Concepts and Proposals," Working Papers 1227, Princeton University, Department of Economics, Center for Economic Policy Studies..
    2. Peter B., Kenen, 2011. "Beyond the dollar," Journal of Policy Modeling, Elsevier, vol. 33(5), pages 750-758, September.
    3. José Antonio Ocampo, 2017. "Resetting the International Monetary (Non)System," Books, Red Investigadores de Economía, number 2017-11, May.
    4. Hyoung-kyu Chey, 2013. "The Concepts, Consequences, and Determinants of Currency Internationalization," GRIPS Discussion Papers 13-03, National Graduate Institute for Policy Studies.
    5. Jeff Chelsky, 2011. "The SDR and Its Potential as an International Reserve Asset," World Bank Publications - Reports 10095, The World Bank Group.
    6. repec:pri:cepsud:208kenen is not listed on IDEAS
    7. Peter B. Kenen, 2010. "Renovation of the Global Reserve Regime: Concepts and Proposals," Working Papers 1227, Princeton University, Department of Economics, Center for Economic Policy Studies..
    8. Kenen, Peter B., 2013. "Reprint of: Beyond the dollar," Journal of Policy Modeling, Elsevier, vol. 35(3), pages 440-448.

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