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The Instability and Inequities of the Global Reserve System

  • José Antonio Ocampo
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    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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    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
    Contact details of provider: Web page: http://www.un.org/en/development/desa/working-papers.html
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    1. Graciela L. Kaminsky & Carmen M. Reinhart & Carlos A. Vegh, 2004. "When it Rains, it Pours: Procyclical Capital Flows and Macroeconomic Policies," NBER Working Papers 10780, National Bureau of Economic Research, Inc.
    2. Ocampo, Jose Antonio & Stiglitz, Joseph E. (ed.), 2008. "Capital Market Liberalization and Development," OUP Catalogue, Oxford University Press, number 9780199238446, March.
    3. 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.
    4. Serge Jeanneau & Camilo E Tovar, 2006. "Domestic bond markets in Latin America: achievements and challenges," BIS Quarterly Review, Bank for International Settlements, June.
    5. Reisen, Helmut, 2002. "Ratings since the Asian Crisis," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
    6. 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).
    7. Guillermo A. Calvo & Leonardo Leiderman & Carmen M. Reinhart, 1993. "Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors," IMF Staff Papers, Palgrave Macmillan, vol. 40(1), pages 108-151, March.
    8. 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, March.
    9. Hyman P. Minsky, 1992. "The Financial Instability Hypothesis," Economics Working Paper Archive wp_74, Levy Economics Institute.
    10. M. Ayhan Kose & Kenneth Rogoff & Eswar Prasad & Shang-Jin Wei, 2003. "Effects of Financial Globalization on Developing Countries; Some Empirical Evidence," IMF Occasional Papers 220, International Monetary Fund.
    11. José Antonio Ocampo & Juan Martin, 2003. "Globalization and Development : A Latin American and Caribbean Perspective," World Bank Publications, The World Bank, number 14455, June.
    12. 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.
    13. repec:idb:brikps:59438 is not listed on IDEAS
    14. Juan Carlos Ramírez & Vivianne Ventura-Dias & Alicia Bárcena & Eugenio Lahera, 2003. "Globalization and Development: A Latin American and Caribbean Perspective," IDB Publications (Books), Inter-American Development Bank, number 59438 edited by Juan Martin & José Antonio Ocampo.
    15. 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.
    16. 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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