...back to the PALAIS-ROYAL INITIATIVE* REFORM OF THE INTERNATIONAL MONETARY SYSTEM: A COOPERATIVE APPROACH FOR THE TWENTY FIRST CENTURY
February 8th, 2011
Lets remind authors:
A group convened by:
Michel Camdessus, Alexandre Lamfalussy and Tommaso Padoa-Schioppa,
and also comprising
Sergey Aleksashenko, Hamad Al Sayari, Jack T. Boorman, Andrew Crockett,
Guillermo de la Dehesa, Arminio Fraga, Toyoo Gyohten, Xiaolian Hu,
André Icard, Horst Koehler, Guillermo Ortiz, Maria Ramos,
Y.Venugopal Reddy, Edwin M. Truman, and Paul A. Volcker
[Mrt: There is this whole section about the Role of SDRs starting at pg15:]
V. THE ROLE OF THE SDR
An evolving international monetary system. The International Monetary System will continue to evolve, in part reflecting continued shifts in the relative weights of different economies in the world. There is a question whether, looking forward, the new needs that arise in a multi-polar world can be adequately addressed by one or more national currencies, or if a non-national currency instrument may have a role to play, e.g. as a complementary reserve asset and/or as an international numeraire not directly affected by the domestic policies of one economy.
Background. The SDR – a basket currently made up of the four freely usable currencies issued by economies accounting for a large share of world trade – was first created at the end of the sixties with the view of contributing to an adequate long-term creation of primary reserve assets in the context of the Bretton-Woods system. The objective, as stated in the IMF's Articles of Agreement, was to make the SDR "...the principal reserve asset..." in the international monetary system. Its use was considerably reduced after the system of fixed exchange rates and the peg of the U.S. dollar to gold were dismantled. It has nevertheless demonstrated its usefulness during the recent crisis with a rapidly decided exceptional allocation.
Re-examining the SDR’s role. It might be useful to re-explore the potential role of the SDR (e.g. as a reserve asset, as a unit of account, etc.) in serving the public common good of monetary and financial stability in the new context of today’s globalized and increasingly multipolar world. It is recognized that the SDR’s role as a store of value will remain limited so long as it depends on the value of the component currencies. However the use of the SDR as a unit of account could reduce the volatility of valuation in comparison with the use of a single currency. Furthermore, having an internationally created reserve asset has proved useful on occasion in the past and may prove useful again in the future. Making this reserve asset more generally acceptable and usable would be in the common interest of all countries. Furthermore, the issue of the SDR’s potential role in a long term perspective in addressing potential demands that may arise should remain under consideration, not only to stay in compliance with the undertaking of the Articles of Agreement1, but also in view of the role it could play in addressing potential demands that may arise.
Suggestion 13: The scope for the SDR to play a greater role in the international monetary system should be examined. The following ideas with regard to SDR as a reserve asset and as an international unit of account might be explored:
- Reserve asset: regular allocations of SDR under appropriate safeguards might be considered and, in addition, procedures for allocating SDR’s in exceptional circumstances might be put in place. Furthermore, in view of making the SDR the principal reserve asset in the international monetary system, as stated in the Articles of Agreement, its attractiveness could be improved.
- The scope for supporting the orderly diversification of reserves via a mechanism allowing their conversion into SDR-denominated claims could be re-examined. This objective underlay work on a substitution account in the 1970s. While efforts at the time faltered, alternative designs for a substitution account could be explored.
- Unit of account: the IMF could work with the private sector to explore ways in which the SDR could be more widely used in private transactions, as was beginning to happen in the early 1980s, and for invoicing commodity prices and international trade in SDR. Moreover, international statistics established by the IMF, and by other international institutions (on balance of payments and international reserves in particular) could be reported in SDR as far as possible. Finally, the IMF could consider formulating vis-à-vis the SDR the exchange rates “norms” described in suggestion 7.
Suggestion 14: The composition of the SDR basket should reflect the relative importance of economies in international trade and financial transactions. Changes in the composition of the SDR basket should be rare and rules-based to maximize predictability (e.g., periodic adjustments of the weights in the basket should follow predictable rules, and currencies would be included or excluded once they meet certain objectively defined criteria). The requirement that only currencies widely used in international payments and financial transactions can be part of the SDR basket should be maintained.
Suggestion 15: The scope for the use of the SDR in incentives to improve the workings of the adjustment process could be explored. Consideration might be given to conditioning allocations of SDR to countries on their observance of norms (or agreed targets). Access to the voluntary SDR market might be conditioned on a country’s meeting the full requirements of a strengthened multilateral surveillance system.
Art. VIII, Section 7: “Each member undertakes to collaborate with the Fund and with other members in order to ensure that the policies of the member with respect to reserve assets shall be consistent with the objectives of promoting better international surveillance of international liquidity and making the special drawing right the principal reserve asset in the international monetary system”.
2 Suggestions 13 to 15 have not been fully developed but there was a near consensus amongst the group on proposing that the subject merits serious discussions.