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The Instability and Inequities of the Global Reserve System

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  • José Antonio Ocampo
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    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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    File URL: http://www.un.org/esa/desa/papers/2007/wp59_2007.pdf
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    Bibliographic Info

    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
    Date of revision:
    Handle: RePEc:une:wpaper:59

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    Web page: http://www.un.org/en/development/desa/working-papers.html
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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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    References

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    1. 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.
    2. Graciela L. Kaminsky & Carmen M. Reinhart & Carlos A. Végh, 2005. "When It Rains, It Pours: Procyclical Capital Flows and Macroeconomic Policies," NBER Chapters, in: NBER Macroeconomics Annual 2004, Volume 19, pages 11-82 National Bureau of Economic Research, Inc.
    3. Juan Carlos Ramírez & Vivianne Ventura-Dias & Alicia Bárcena & Eugenio Lahera, . "Globalization and Development: A Latin American and Caribbean Perspective," IDB Publications 59438, Inter-American Development Bank.
    4. Ocampo, Jose Antonio & Stiglitz, Joseph E. (ed.), 2008. "Capital Market Liberalization and Development," OUP Catalogue, Oxford University Press, number 9780199238446, September.
    5. Stiglitz, Joseph & Ocampo, Jose Antonio & Spiegel, Shari & Ffrench-Davis, Ricardo & Nayyar, Deepak, 2006. "Stability with Growth: Macroeconomics, Liberalization and Development," OUP Catalogue, Oxford University Press, number 9780199288144, September.
    6. 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.
    7. José Antonio Ocampo & Juan Martin, 2003. "Globalization and Development : A Latin American and Caribbean Perspective," World Bank Publications, The World Bank, number 14455, July.
    8. White, William R., 2005. "Procyclicality in the Financial System: Do We Need a New Macrofinancial Stabilization Framework?," Kiel Economic Policy Papers 2, Kiel Institute for the World Economy (IfW).
    9. Michael Dooley & David Folkerts-Landau & Peter Garber, 2005. "An essay on the revived Bretton Woods system," Proceedings, Federal Reserve Bank of San Francisco, issue Feb.
    10. Helmut Reisen, 2003. "Ratings Since the Asian Crisis," OECD Development Centre Working Papers 214, OECD Publishing.
    11. Serge Jeanneau & Camilo E Tovar, 2006. "Domestic bond markets in Latin America: achievements and challenges," BIS Quarterly Review, Bank for International Settlements, June.
    12. M. Ayhan Kose & Kenneth Rogoff & Eswar Prasad & Shang-Jin Wei, 2003. "Effects of Financial Globalization on Developing Countries," IMF Occasional Papers 220, International Monetary Fund.
    13. Hyman P. Minsky, 1992. "The Financial Instability Hypothesis," Economics Working Paper Archive wp_74, Levy Economics Institute.
    14. 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.
    15. Claudio Borio & Craig Furfine & Philip Lowe, 2001. "Procyclicality of the financial system and financial stability: issues and policy options," BIS Papers chapters, in: Bank for International Settlements (ed.), Marrying the macro- and micro-prudential dimensions of financial stability, volume 1, pages 1-57 Bank for International Settlements.
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    Cited by:
    1. Carabelli, Anna & Cedrini. Mario, 2013. "Globalization and Keynes's Ideal of a 'Sounder Political Economy between All Nations," CESMEP Working Papers 201305, University of Turin.
    2. José Antonio Ocampo & Stephany Griffith-Jones, 2009. "Sovereign Wealth Funds : a Developing Country Perspective," Revue d'Économie Financière, Programme National Persée, vol. 9(1), pages 241-254.
    3. Gheorghe Voinea & Sorin Gabriel Anton, 2009. "Redefining the role of international monetary fund in the light of the current economic and financial crisis," Analele Stiintifice ale Universitatii "Alexandru Ioan Cuza" din Iasi - Stiinte Economice, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 56, pages 202-209, November.
    4. Ákos Dani & Ágnes Tõrös, 2011. "China’s Sovereign Wealth Funds: A path to sustained development?," Public Finance Quarterly, State Audit Office of Hungary, vol. 56(2), pages 241-256.
    5. José Antonio Ocampo & Stephany Griffith Jones, 2009. "Les fonds souverains du point de vue des pays en développement," Revue d'Économie Financière, Programme National Persée, vol. 9(1), pages 259-274.
    6. Shrestha, Prakash Kumar, 2013. "Banking Ssystems, central banks and international reserve accumulation in East Asian economies," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 7(14), pages 1-29.
    7. José Antonio Ocampo Gaviria, 2009. "Economic Policy Implications of the Current Financial Instability," Ensayos Económicos, Central Bank of Argentina, Economic Research Department, vol. 1(53-54), pages 191-215, January -.
    8. Muchlinski, Elke, 2010. "Metaphern, Begriffe und Bedeutungen: Das Beispiel internationale monetäre Institutionen," Discussion Papers 2010/14, Free University Berlin, School of Business & Economics.

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