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The Instability and Inequities of the Global Reserve System

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Author Info
José Antonio Ocampo
Abstract

This paper argues that the current global reserve system is inherently unstable due to the use of a national currency as the major international reserve currency, and the high demand for “self-insurance” by developing countries. The latter is due to the mix of highly pro-cyclical capital flows and the limited room to maneuver that developing countries have to manage counter-cyclical macroeconomic policies. Both features imply that the system is also inequitable. An important insight of the paper is that such inequities feed into the instability of current arrangements. Any meaningful reform of the system must therefore address these two interlinked features.

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Paper provided by United Nations, Department of Economics and Social Affairs in its series Working Papers with number 59.

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Length: 20 pages
Date of creation: Nov 2007
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Handle: RePEc:une:wpaper:59

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Related research
Keywords: Global reserve currency; seigniorage powers; financial volatility; pro-cyclical macroeconomic policies; self-insurance; inequities of international economic order;

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Find related papers by JEL classification:
F02 - International Economics - - General - - - International Economic Order; Noneconomic International Organizations;; Economic Integration and Globalization: General
F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
F55 - International Economics - - International Relations and International Political Economy - - - International Institutional Arrangements

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Serge Jeanneau & Camilo E Tovar, 2006. "Domestic bond markets in Latin America: achievements and challenges," BIS Quarterly Review, Bank for International Settlements, June. [Downloadable!]
  2. Reinhart, Carmen & Calvo, Guillermo & Leiderman, Leonardo, 1993. "“Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors," MPRA Paper 7125, University Library of Munich, Germany. [Downloadable!]
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  3. Kenneth Rogoff & M. Ayhan Kose & Eswar Prasad & Shang-Jin Wei, 2004. "Effects on Financial Globalization on Developing Countries: Some Empirical Evidence," IMF Occasional Papers 220, International Monetary Fund.
  4. John Williamson, 2004. "The future of the global financial system," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 26(4), pages 607-611, October. [Downloadable!] (restricted)
  5. Helmut Reisen, 2003. "Ratings Since the Asian Crisis," OECD Development Centre Working Papers 214, OECD, Development Centre. [Downloadable!]
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  6. Michael P. Dooley & David Folkerts-Landau & Peter Garber, 2003. "An Essay on the Revived Bretton Woods System," NBER Working Papers 9971, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  7. José Antonio Ocampo & Stephany Griffith-Jones, 2007. "A counter-cyclical framework for a development-friendly international financial architecture," Working Papers 39, United Nations, Department of Economics and Social Affairs. [Downloadable!]
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