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International Liquidity and the Role of the SDR in the International Monetary System

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  • J. J. Polak
  • Mr. Peter B. Clark

Abstract

This paper describes how the changed conditions in the international monetary system have undermined the role originally envisaged for the SDR. It argues that the concept of a global stock of international liquidity, which was fundamental to the creation of the SDR, is now no longer relevant. Nonetheless, there are good reasons to satisfy part of the growing demand for international reserves with SDR allocations: (i) there are efficiency gains, as SDRs can be created at zero resource cost, and thus obviate the need for countries to run current account surpluses or engage in expensive borrowing to obtain reserves, and (ii) there would be a reduction in systemic risk, as SDRs would substitute to some extent for borrowed reserves, which are less reliable and predictable source of reserves, especially in times of crisis.

Suggested Citation

  • J. J. Polak & Mr. Peter B. Clark, 2002. "International Liquidity and the Role of the SDR in the International Monetary System," IMF Working Papers 2002/217, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2002/217
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    References listed on IDEAS

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    Cited by:

    1. Agnès Bénassy-Quéré & Damien Capelle, 2014. "On the inclusion of the Chinese renminbi in the SDR basket," International Economics, CEPII research center, issue 139, pages 133-151.
    2. Anthony Clunies-Ross, 2004. "Imminent Prospects for Additional Finance: What Might Be Done Now or Soon and Under What Conditions," WIDER Working Paper Series RP2004-45, World Institute for Development Economic Research (UNU-WIDER).
    3. Mendoza, Ronald U., 2004. "International reserve-holding in the developing world: self insurance in a crisis-prone era?," Emerging Markets Review, Elsevier, vol. 5(1), pages 61-82, March.
    4. Anthony Clunies-Ross,, 2006. "Ways of Paying for Global Public-Goods," Working Papers id:536, eSocialSciences.
    5. Anthony Clunies-Ross & John Langmore, 2006. "Political Economy of Additional Development Finance," WIDER Working Paper Series DP2006-09, World Institute for Development Economic Research (UNU-WIDER).
    6. Ernest Aryeetey, 2004. "A Development-focused Allocation of the Special Drawing Rights," WIDER Working Paper Series DP2004-03, World Institute for Development Economic Research (UNU-WIDER).
    7. Reis, José Guilherme Almeida dos., 2004. "International finance : meeting the needs of people in developing countries," ILO Working Papers 993701163402676, International Labour Organization.
    8. repec:ilo:ilowps:370116 is not listed on IDEAS
    9. Anthony Barnes Atkinson, 2003. "Innovative Sources for Development Finance: Over-Arching Issues," WIDER Working Paper Series DP2003-88, World Institute for Development Economic Research (UNU-WIDER).
    10. Anthony Clunies-Ross, 2004. "Alternative ways of paying for global public goods," Journal of International Development, John Wiley & Sons, Ltd., vol. 16(7), pages 971-982.

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