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Enhanced Special Drawing Rights: How China Could Contribute to a Reformed International Monetary Architecture


  • Matthew Harrison
  • Geng Xiao


Since the end of the Bretton Woods era, the world has operated on a de facto system of free‐floating exchange rates, with the US dollar as the dominant international currency. The system, characterized by large pro‐cyclical capital flows and chronic imbalances, is inherently unstable, and has contributed to repeated crises, recessions and geopolitical tensions. One potentially “least‐difficult” line of reform would be to allow the evolution of a multi‐currency system, underpinned by an expanded role for Special Drawing Rights (SDRs). Attempts to promote wider use of the SDR have foundered on the liquidity premium. However, for Chinese corporations and institutions, at present restricted in their capital account activities, the SDR liquidity premium would appear less daunting. The Chinese authorities could provide policy encouragement for the use of SDRs by their institutions. This initiative, supported by China's Special Administrative Region Hong Kong, would kick‐start an international SDR ecosystem, and encourage even broader use of SDRs, to the benefit of international monetary stability.

Suggested Citation

  • Matthew Harrison & Geng Xiao, 2018. "Enhanced Special Drawing Rights: How China Could Contribute to a Reformed International Monetary Architecture," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 26(4), pages 41-61, July.
  • Handle: RePEc:bla:chinae:v:26:y:2018:i:4:p:41-61
    DOI: 10.1111/cwe.12248

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    References listed on IDEAS

    1. Palais-Royal Initiative, 2011. "Reform of the International Monetary System: A Cooperative Approach for the Twenty-First Century," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 3(2), pages 185-193, May.
    2. Robert N. McCauley & Catherine R. Schenk, 2015. "Reforming the International Monetary System in the 1970s and 2000s: Would a Special Drawing Right Substitution Account Have Worked?," International Finance, Wiley Blackwell, vol. 18(2), pages 187-206, June.
    3. Barrdear, John & Kumhof, Michael, 2016. "The macroeconomics of central bank issued digital currencies," Bank of England working papers 605, Bank of England.
    4. Kregel, Jan, 2015. "Emerging markets and the international financial architecture: a blueprint for reform," Brazilian Journal of Political Economy, Brazilian Journal of Political Economy (Brazil), vol. 35(2), April-Jun.
    5. repec:ekm:wpaper:v:35:y:2015:i:2:a:139 is not listed on IDEAS
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    Cited by:

    1. Faridul Islam, 2019. "Currency Crisis: Are There Signals to Read?," Journal of Risk and Financial Management, MDPI, Open Access Journal, vol. 12(3), pages 1-4, August.
    2. Matthew Harrison & Geng Xiao, 2019. "China and Special Drawing Rights—Towards a Better International Monetary System," Journal of Risk and Financial Management, MDPI, Open Access Journal, vol. 12(2), pages 1-15, April.
    3. Katarzyna Twarowska, 2019. "Reforms of China’s exchange rate regime and the renminbi interna-tionalization," Ekonomia i Prawo, Uniwersytet Mikolaja Kopernika, vol. 18(4), pages 531-556, December.

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