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This paper estimates the number of teachers required to meet different pupil-teacher (P-T) ratio targets in 2030 for all education levels in Eastern and Southern Africa (ESA). It also assesses the affordability of those targets based on different scenarios and presents detailed projections for the region as well as for 20 countries. To meet goals around education and learning, the model finds that governments in ESA will need to pay for more than five million additional teachers by 2030. When compared to affordability estimates, which reflect the latest teacher compensation spending trends, government investments will need to double. While there is variation across countries, the compounding shortage of teachers is a serious risk to improving learning across the region.These findings underscore the need to invest more resources in teachers and education systems more generally. If governments were able to progressively increase their investment in education to reach six percent of GDP in 2030, which is in line with the most ambitious target in the Incheon Declaration, it would be possible to recruit an additional three million teachers, which partially closes the gap. However, most governments will need to invest much more, including up to eight percent of GDP, to maximize learning opportunities and outcomes for all children in the region.Boosting investments in education systems is a particularly daunting task in the context of COVID-19 and the multitude of competing priorities. Nevertheless, governments are strongly encouraged to steadily increase the amount of resources allocated to the education sector each year, strengthen efforts to improve value for money and transparency in education spending processes, make the case to receive greater external support for education, and negotiate for debt relief that directly benefits the education sector, including through debt-for-education swaps.Boosting investments is particularly challenging in the context of COVID-19 and the multitude of competing priorities. However, governments can: (i) steadily increase the amount of resources allocated to the education sector in the annual budget cycle;(ii) convert some of the new Special Drawing Rights (SDRs) allocated by the IMF to invest in the education sector;(iii) strengthen efforts to improve value for money and transparency in education spending processes;(iv) develop compelling investment cases to receive greater external support for education from donors and international financial institutions;and (v) negotiate for debt relief that directly benefits the education sector, including through debt-for-education swaps.

Since the foreign reserve is endogenously determined by each country, its identification is challenging. To overcome this difficulty, we utilize the special drawing rights (SDR) allocation of USD 650 billion by the International Monetary Fund to combat the coronavirus disease pandemic. Given the stylized fact that a sudden stop is likely to depreciate foreign exchange in a very short period, it is natural to expect the SDR allocation to mitigate the risk of devaluation, especially for emerging countries, which typically face a liquidity constraint. According to our empirical results, the increase in foreign reserves by the SDR allocation appreciates the exchange rate among emerging countries while depreciating foreign generally.

This article examines the geopolitics, legal nuances and monetary policy which inform Carney's proposal. Part I sets out the application of block-chain technology in the context of payment systems, and discusses the geopolitics of Libra and the shift in focus to Central Bank Digital Currencies ('CBDCs'). It suggests that state-backed cryptocurrencies are more likely than their private sector counterparts to fit the role of true digital currencies, at least on a domestic level. Part II explains the legal distinctions between the cryptocurrency models proposed by Facebook and others, and CBDCs. The former fulfils the main functions of money by granting a claim to the holder, whereas the latter does so as an 'object' of monetary policy. A Global Stablecoin ('GSC') such as the SHC does not necessarily fall into either camp, but its success as a global reserve currency may hinge upon the fine details of its legal construction. In Part III, one conception of the SHC, based on the 'claims model' is set out. Whilst the use of block-chain technology is undoubtedly novel, there are significant similarities between this version of the SHC and previously rejected reforms to the 'Special Drawing Rights' (SDR) allocated by the International Monetary Fund ('IMF'). It is argued that the extent of the similarities indicates that the claims model is likely to face the same hurdles which stymied the campaign to develop the SDRs into a global reserve currency. This begs the question, however, of why Carney would propose the SHC if the odds in monetary policy were already so firmly stacked against it. Part IV considers the 'objects model' as applied to a SHC. It tentatively concludes that the features of the objects model which distinguish it from the claims model greatly improve its prospects of success. Specifically, the generation of network effect value, as a substitute for the convertibility value of SDRs, may be the decisive contribution of block-chain technology to a truly international currency. The article concludes that a claims-based SHC would, to a great extent, be an attempt to reinvent SDRs in a digital age, and that the advantages of block-chain technology will be insufficient to surmount well-established US monetary policy. The objects model, whilst more ambitious in some respects, constitutes a radically novel proposal which may, for that reason amongst others, gain global traction.

The global financial crisis dominated the international financial landscape during the first 20 years of the 21st century. This paper assesses the contribution of the international coordination of economic policies to contain the crisis. The paper evaluates international efforts to diagnose the crisis and decide on appropriate responses, the treatments that were agreed and adopted, and the successes and failures as the crisis unfolded. International economic policy coordination eventually contributed importantly to containing the crisis, but the authorities failed to agree on a diagnosis and the consequent need for joint action until the case was obvious. The policy actions that were adopted were powerful and effective, but they may have undermined prospects for coordinated responses to crises in the future.

The International Monetary Fund is one of the largest international organizations using a weighted voting system. The weights of its 188 members are determined by a fixed amount of basic votes plus some extra votes for so-called Special Drawing Rights (SDR). On January 26, 2016, the conditions for the SDRs were increased at the 14th General Quota Review, which drastically changed the corresponding voting weights. However, since the share of voting weights in general is not equal to the influence, of a committee member on the committees overall decision, so-called power indices were introduced. So far the power distribution of the IMF was only computed by either approximation procedures or smaller games than then entire Board of Governors consisting of 188 members. We improve existing algorithms, based on dynamic programming, for the computation of power indices and provide the exact results for the IMF Board of Governors before and after the increase of voting weights. Tuned low-level details of the algorithms allow the repeated routine with sparse computational resources and can of course be applied to other large voting bodies. It turned out that the Banzhaf power shares are rather sensitive to changes of the quota., Comment: 19 pages, 2 figures, 13 tables

Since the time of the French Revolution, when a gold standard saved the nation from hyperinflation, France has wanted gold to be the linchpin of international monetary arrangements. And, indeed, from the earliest use of bills and coins as money until August 1971, money was, in principle at least, a claim on gold. At Bretton Woods, New Hampshire, where in July 1944 730 delegates from 44 countries met to create the post-war international financial order, the French argued that gold -- which John Maynard Keynes had described two decades earlier as a “barbarous relic” -- was the key to international monetary stability. The French attachment to gold was rooted at least as much in politics as in economics, in particular in France’s efforts to take international economic power away from the United States and lodge it in a stronger and more powerful France. On Sunday, August 15, 1971, Richard Nixon announced that the United Sates was no longer willing to exchange dollars for gold. In a few short sentences, the president had dismantled the existing international monetary system and abrogated the agreements of Bretton Woods, which had required each country to maintain its currency’s exchange rate within a specified value of gold. No one knew exactly what this would mean for the international monetary system, but the French were especially unhappy. France soon became the principal antagonist to the United States in the transformation of the international monetary system from fixed to floating exchange rates. This paper, to be published as a chapter in Naomi Lamoreaux and Ian Shapiro, eds., The Bretton Woods Agreement together with Scholarly Commentaries and Essential Historical Documents (forthcoming, Yale University Press), traces France’s efforts to maintain a central role for gold in international monetary arrangements until 1976 when the IMF Articles were amended to reflect the new reality of floating exchange rates.

This study tests whether international reserve accumulation is inflationary because of moral hazard and incentive effects. We use the 2009 allocation of Special Drawing Rights (SDR) as a natural experiment to trace the effect of an exogenous nonmonetary shock on International Monetary Fund members' reserve holdings. In countries that received large SDR allocations, inflation was about half a percentage point higher in the 2 years following the allocation, controlling for other standard determinants. This effect is commensurate with the size of these countries' discretionary fiscal deficits. This result is consistent with the hypothesis that reserve accumulation may be inflationary because of incentive effects.

In the Bretton-Woods era the controversy over cross-border use of national monies turned on how to create ‘symmetries’ and avoid significant ‘asymmetries’ in the way national currencies shared specific international currency functions. We examine the twentieth-century work of prominent economists on the nature, choice, and functions of international currencies. Prescriptive approaches to international currency formation are considered, beginning with the discussion of the Bretton-Woods plans, followed by doctrinal developments stimulated by the collapse of the Bretton-Woods system. Why are those developments instructive given recent revisitation of the currency internationalisation question in modern international monetary thought and policy? The modern revival of this question resembles a rehabilitation and restatement of earlier controversies though it underestimates the gradual encroachment of the idea of international currency competition. This idea came to dominate other doctrines from the 1970s; it accommodates the ongoing adaptation of national currencies to the full range of international currency functions.

The currencies of nations, in their utility as a medium of exchange and store of value, behave variously according to the integrated dynamics of free enterprise, the central bank and government policy. As such, foreign exchange rates fluctuate constantly with consequences for the growth of individual countries and the global economy. This paper examines the influences of monetary policy, fiscal policy, international trade and investment, and currency trading on exchange rates. Focus centers on the optimal factors that establish a sound currency essential for a successful economy. In evidence is the primacy of the U.S. dollar as an international reserve currency and a safe haven asset indicative of America’s economic and political hegemony, despite occasional faltering. The study illustrates the nature of the myriad variables affecting currency values and how they impinge on economic performance, presenting several currency profiles as examples. It covers the dynamics of money creation and interest rate policy, trade and capital flows, central bank intervention, currency controls, and black markets. In addition, the paper shows how currencies react to current world events and developments, including deflation, European Central Bank quantitative easing, competitive devaluations, the floating Swiss franc, plummeting oil prices, and the tensions in Greece. Also discussed are the contemporary anomalies of foreign exchange manipulation and the bitcoin virtual currency.

A fivefold increase in central bank foreign reserves across the globe over the past fifteen years has prompted the question of whether this constitutes a new form of mercantilism. According to this view, countries accumulate foreign reserves in order to support export promotion by influencing exchange rates and/or to signal relative economic strength as a modern version of bullionism. Using a unique dataset on daily foreign exchange intervention, this paper investigates the mercantilist motive hypothesis for the case of Brazil over the period 2009-2012. The findings support reserve accumulation as a by product of successful central bank intervention in the Brazilian foreign exchange market. The results also indicate regional currency intervention spillovers to Brazil's neighbouring countries, including on their foreign reserve build-ups.

Several central banks in emerging economies are concerned with excessive volatility in foreign exchange markets and would like to control the direction and speed with which the value of their currency changes. Historically, currency market interventions have consisted of using foreign exchange reserves to purchase and sell foreign currency directly in the spot market. However, these spot interventions are not the only type of interventions available to central banks. The Colombian central bank implemented various strategies to intervene into currency markets to smooth volatility, build reserves, and influence the direction of the exchange rate by issuing options contracts as well as using daily discretionary purchases of US dollars. In this paper we analyze these recent strategies employed by Colombia, with a special focus on the volatility option strategy. We argue that the abandonment of the options program was premature and that its success was not fully appreciated in previous literature.

We study the impact of monetary policy on the supply of bank credit when bank lending is also denominated in foreign currencies. Accessing a comprehensive supervisory dataset from Hungary, we find that the supply of bank credit in a foreign currency is less sensitive to changes in domestic monetary conditions than the equivalent supply in the domestic currency. Changes in foreign monetary conditions similarly affect bank lending more in the foreign than in the domestic currency. Hence when banks lend in multiple currencies the domestic bank lending channel is weakened and international bank lending channels become operational.

This paper focuses on the rise of the "petroyuan" -- the use of China's currency (renminbi, denominated in yuan) to pay for a growing share of its hydrocarbon imports. The advent of the petroyuan holds potentially profound ramifications for both transactional practice in international energy markets and the future of the international monetary system. For the last four decades, the dollar has been the overwhelmingly dominant currency in which oil and gas volumes are priced and in which international oil and gas sales are invoiced and settled. In turn, the dollar's role in the international energy trade has, for forty years, been a pillar for its standing as the world's leading transactional and reserve currency. The birth of the petroyuan is the most significant challenge yet to the indefinite prolongation of dollar dominance in international oil and gas transactions -- and thus, by extension, to the dollar's global primacy. The paper examines the birth of the petroyuan, considers its current and prospective challenge to the petrodollar, assesses the long-term implications of these developments for transactional practice in international energy markets and for the future of the international monetary system. In doing so, the paper highlights deficiencies in conventional economic explanations for patterns of currency use in cross-border oil and gas transactions and underscores the analytic value-added of alternative approaches drawn from institutional and neo-institutional economics. In particular, the paper emphasizes how powerful state actors work through international political and economic structures to limit and influence market participants' options for currency choice in cross-border hydrocarbon sales. They do so for explicitly strategic reasons, including shaping the institutional environment for international monetary relations. In this regard, taking account of American and, more recently, Chinese state preferences and actions is essential to explaining evolving patterns of currency choice in international oil and gas markets.Looking ahead, it seems highly likely that use of renminbi as a settlement currency for cross-border hydrocarbon transactions will increase. As Sino-American currency contestation unfolds in coming years, it is important for scholars, practitioners, and policymakers to understand that currency choice in international energy markets is framed at least as much by political forces -- in particular, by great power competition -- as by economic considerations.

In this paper, we consider an alternative perspective to China's exchange rate policy. We study a semi-open economy where the private sector has no access to international capital markets but the central bank has full access. Moreover, we assume limited financial development generating a large demand for saving instruments by the private sector. We analyze the optimal exchange rate policy by modelling the central bank as a Ramsey planner. Our main result is that in a growth acceleration episode it is optimal to have an initial real depreciation of the currency combined with an accumulation of reserves, which is consistent with the Chinese experience. This depreciation is followed by an appreciation in the long run. We also show that the optimal exchange rate path is close to the one that would result in an economy with full capital mobility and no central bank intervention.

That central banks should hold foreign currency reserves is a key tenet of the post-Bretton Woods international financial order. But recent growth in the reserve balances of industrialized countries raises questions about what level and composition of reserves are “right” for these countries. A look at the rationale for reserves and the reserve practices of select countries suggests that large balances may not be needed to maintain an effective exchange rate policy over the medium and long term. Moreover, countries may incur an opportunity cost by holding funds in currency and asset portfolios that, while highly liquid, produce relatively low rates of return.

Internationalization of the renminbi is a stated goal of the Chinese government, its brief flirtation with Special Drawing Rights and an Asian Currency Unit notwithstanding. Chinese officials understand that a dollar-centric international monetary and financial system is a mixed blessing. Doing cross-border business in their own currency confers convenience value and efficiency advantages on United States (US) banks and firms. It frees them from the costs of converting currencies and hedging exchange rate exposures, something that Chinese banks and firms will enjoy only when they are similarly able to conduct international transactions in their home currency. Relying on the dollar for international liquidity and reserves lays the People’s Republic of China (PRC) open to the foibles of US policy, whose downside was made clear by the incipient liquidity shortage that followed the failure of Lehman Bros. in 2008. It exposes the PRC to the risk of capital losses on its foreign security holdings. Renminbi internationalization is part and parcel with Chinese leaders’ efforts to rebalance their economy from investment to consumption, from exports to domestic absorption, and from manufacturing to services, including financial services. This explains why Chinese policy makers have set their sights on “basic capital account convertibility” within five years and on elevating Shanghai to first-class-financial-center status within ten, at which time the renminbi will be a leading international and reserve currency.

For nearly a century the US dollar has been unchallenged as the sole and later the most important reserve and intervention currency in the world. The dollar became such an important currency after the shift from the British pound which, during the gold standard, was the world's reserve currency until the first decades of the XX century. The dollar detained its primary importance even after the breakdown of the Bretton Woods system despite several different currencies like the German mark, Japanese yen, Swiss franc, French franc etc., have been occasionally serving as reserve currencies. The situation considerably changed after introducing of the euro which in the first decade of the XXI century exceeded 20% share in reserves of central banks and became the second after the US dollar reserve and intervention currency. This was the main factor increasing the demand for the euro and increasing the pressure on appreciation of the euro exchange rate unless the authority responsible for the supply of that currency is able to increase it. Many circumstances indicate that the pressure on appreciation of the euro may increase and this becomes a great challenge for the authority issuing the already second significant reserve currency in the world. Until now the Eurosystem remains somewhat powerless to manage successfully the above mentioned challenge so an important question arises how this situation might be improved. Nevertheless the room for the euro exists but the possibility to increase its reserve holdings and share depends on some necessary adjustments mainly in the treaty framework of the European central banking. This essay is a part of the wider project concerning the future of the euro of the euro area and their significance in the international financial system.

This paper reviews some of the current debates on the reform of the international monetary system. Despite its deficiencies, the United States (US) dollar will remain the dominant currency and Special Drawing Rights (SDR) cannot serve as either an international medium of exchange or a reserve currency. The International Monetary Fund (IMF) has changed its position to accept capital controls under certain circumstances. Refining control instruments better tuned to present day markets may bring about greater acceptance. The 2008–2009 global financial crisis has dimmed much of the earlier hope for the multilateralized Chiang Mai Initiative. The currency swap arrangements portend a new form of international cooperation. Finally, for the Group of Twenty (G20) to matter, the systemically important countries need to ensure the stability of their financial systems and economies.

This paper examines the currency manipulation policy in the foreign exchange markets of thirteen emerging countries using a structural vector autoregressive (SVAR) framework to link the dynamics of real exchange rates and foreign reserves. It is found that for Korea, Singapore, and Taiwan, exchange rate shocks are the main source of fluctuations in foreign reserves over all time horizons. Empirical evidence suggests that these countries intervene substantially in the foreign exchange markets.

This paper addresses two central questions for Asia and the world: (1) What is the purpose of Asian regional policy coordination going forward? (2) Will Asian regional policy coordination substitute or complement global policy coordination? The paper examines the potential coverage and content of such policy coordination, what is meant by Asia in this context, and how Asia fits in with global policy coordination processes. I address three related aspects of Asian regional policy coordination: macroeconomic policies, reserve management, and crisis management. I conclude that while the countries in the Asian region have not completely exploited the scope for regional policy coordination, more ambitious efforts focused on close integration are not likely to bear fruit, in particular, if they are conceived and promoted under the banner of Asian exceptionalism. These conclusions are based on two main considerations: First, Asian economies differ, and will continue to differ, sufficiently in size and stage of development such that it is difficult to conceive of a successful voluntary blending of their interests. Second, the central lesson of the global financial crisis and its current European coda is that global economic and financial integration has advanced sufficiently that countries can run but they cannot hide individually or in sub-global groups of countries.

The global credit crisis of 2008-09 was the most serious shock to the world economy in 80 years. It was for the world what the Asian crisis of 1997-98 had been for emerging markets: a profoundly alarming wake-up call. By laying bare the fragility of global markets, it raised troubling questions about the operation of the 21st-century world economy. It cast doubt on the efficacy of light-touch financial regulation and, more generally, on the prevailing commitment to economic and financial liberalization. It challenged the managerial capacity of institutions of global governance. It augured a changing of the guard, pointing to the possibility that the economies that had been leaders in the global growth stakes in the past would no longer be leaders in the future. Given that the 2008-09 crisis was first and foremost a financial crisis, it is appropriate that analysis should start with an assessment of the causes of recent financial problems and the successes and failures of post-crisis financial reform. The author argues that the traditional separation of macroeconomic and financial policies – the “Tinbergen principle” of assigning monetary policy to the maintenance of price stability and regulatory policy to financial stability – is part of what caused the crisis, and that the development of a synthesis, which flies under the flag of “macro-prudential” or “macro-financial” policy, points the way to a solution. Another striking aspect of the crisis was the abrupt collapse of international trade, which declined even more precipitously than the production of goods and services. Why the impact on trade was so dramatic continues to be debated. Then there was the protectionist response, described in Chapter 3. A few governments responded to the crisis and recession with overtly protectionist policies, but more important was “murky protectionism” defined to include not simply import tariffs, quotas and export taxes but also subsidies, bailouts, preferential public procurement practices. The global crisis also deepened disenchantment with the structure and operation of the international monetary system. It was already a commonplace that a system in which the U.S. dollar enjoyed the “exorbitant privilege” of providing the vast majority of global foreign exchange reserves was dangerously prone to imbalances. Chapter 4 sketches likely future trajectories for the international monetary arrangements. The author is dismissive of far-reaching reforms ranging from a regime based on Special Drawing Rights on the one hand to restoration of a gold-based system on the other. But he is equally skeptical about the viability of a dollar-centric monetary system like that of the recent past. The remaining option being a system organized around several national currencies – not just the dollar but also the euro and the Chinese renminbi, the question then becomes how to ease the transition to such a system and to smooth its operation once it arrives.Among the notable long-term consequences of the crisis has been the emergence of the Group of Twenty (G20) as the de facto steering committee for the world economy, displacing earlier advanced-country-centered groupings, notably the Group of Seven/Eight (G7/8). But, institutionally, the G20 remains a work in progress. As explained in Chapter 5, it has no permanent staff or written constitution. It has no global mandate; why it includes the countries it does reflects the particular historical process out of which it emerged. The details of how the G20 will work with multilateral organizations such as the International Monetary Fund and Financial Stability Board when additional problems arise remain to be determined. As the growing prominence of the G20 reveals, another consequence of the crisis has been to enhance the weight of emerging markets in the world economy. Their economies held up best in the face of the shock, and they continue to grow robustly.Chapter 6 marshals a number of indicators showing just how fast the emerging markets have grown and how importantly they now figure in the world economy. At the same time, as the author explains, these countries face serious challenges in the post-crisis environment. Stagnation in the advanced countries is a challenge for their traditional strategy of export-led growth. Chapter 7 focuses more closely on the challenges facing the emerging markets of East Asia in particular. The global crisis of 2008-09 and, more recently, financial turmoil in Europe had relatively little impact on East Asia’s fast-growing economies. The emerging markets of East Asia, it was increasingly asserted, had successfully decoupled from the advanced-country world. The authors ask in the chapter whether this will remain the case going forward. As global liquidity strains rose again in the latter part of 2011, a number of East Asian currencies weakened substantially, highlighting the region’s continuing dependence on external financial conditions. But if the challenges that emerging markets will face in the new post-crisis environment will be formidable, they pale in comparison with those that will confront the advanced economies. The advanced economies as a group emerged from the crisis with large budget deficits and heavy debts. Winding down those deficits without derailing recovery and damaging the prospects for growth will not be easy. All this takes place against a gloomy demographic backdrop that implies rising old-age dependency ratios, heavy pension obligations and health care costs, and a declining share of the population participating in the labor force.Chapter 8 takes up these issues. The authors frame their analysis around a number of distinctions. Notwithstanding numerous differences among economies, medium-term fiscal challenges are daunting across the advanced-country world. Under any plausible projection of the evolution of macroeconomic variables, current policies are not sustainable. Difficult decisions are unavoidable. The global financial crisis has cast a long shadow. It has profoundly affected the advanced economies, emerging markets and the balance between them. The implications for the international trade, the monetary and financial system, and global governance are far reaching. Drawing out those implications and beginning to comprehend what they mean for the future is the task the authors take up, collectively, in this volume.

The global community faces a number of critical challenges ranging from climate change to crossborder health risks to natural-resource scarcities. Many of these so-called global commons problems carry grave risks to economic growth in the developing world and to the livelihoods and welfare of their people. Climate change is the classic example. Despite the risks involved, donor governments have funded programs addressing global challenges such as climate change at far lower levels than traditional programs of country-based development assistance. The prospects for dealing with such global challenges will depend at least in part on new collective financing mechanisms. In this paper, we examine four categories of existing resource-mobilization options, including (1) transportation levies; (2) currency and financial transaction taxes; (3) capitalization of IMF Special Drawing Rights (SDRs); and (4) the sale, mobilization, or capitalization of IMF gold. In the end, we recommend that willing governments utilize a modest portion of their existing SDR allocations to capitalize a third-party financing entity. This entity would offer bonds on international capital markets backed by its SDR reserves. The proceeds would back private investment in climate-mitigation projects in developing countries that might otherwise lack adequate financing. This approach could mobilize up to $75 billion at little or no budgetary cost for contributing governments. Any limited budgetary costs could be offset by using excess proceeds from recent IMF gold sales. In our view, capitalizing a small portion of existing global assets — SDRs with a small back-up reserve of the income from gold already sold — to finance programs that deal with global public goods and bads makes eminent sense.

Japan since 1990 and the US since 2008 have a zero interest (or \Liquidity Trap") environment. Bankers’ DNA contains: (1) Inability to charge money instead of paying interest for deposits, (2) double entry book-keeping, and (3) ination-aversion . I show that this DNA is responsible for the inability of monetary policy (QE1, QE2 or further real interest rate reductions into negative territory) and scal stimulus to promote American recovery and growth. As a unilateral remedy, the US should \print" about $500 billion, without adding to debt or taxes. If single entry printing is impossible, I suggest a fresh \allocation" of $500 billion in special drawing rights (SDR) to the US, Japan and the Euro-zone via an international agreement. I also indicate the taxing and spending discipline needed to avoid tripping market expectations. However, without it we run the risk of multiple dip recessions

This paper addresses the agenda for the Group of Twenty (G-20) leaders' meeting in Seoul, Korea in November 2010. This is an opportunity and challenge for Asian leaders in particular. Their test will be, first, to demonstrate that they can responsibly advance economic recovery. They must also deliver on institutional reform, in particular of the International Monetary Fund (IMF). Author Edwin M. Truman advocates a substantial expansion of the IMF's role as lender of last resort that is integrated with the surveillance role of the IMF in the form of comprehensive prequalification for IMF assistance and policy advice and a substantial increase in the IMF's financial resources. Truman also propose an approach to meaningful reform of the distribution of IMF quotas along with limiting European seats on the IMF executive board.

This paper focuses on some key aspects of the Gulf Monetary Union and specifically on the new central bank policy in the area of reserve management policy. It will address whether holding a substantial part of reserves in gold would enhance the stability of the new currency and in general how a reserve management policy which includes gold fares against the alternative strategy relying exclusively on holding assets denominated in fiat currencies.The original deadline of January 2010 for the Gulf Monetary Union (GMU) has been missed and a new deadline has not been set. Despite this setback the process has not halted and actually, away from the limelight, technical committees are working, with the plans for the inception of the GCC Monetary Council expected to be finalized by Fall 2010. Once the forerunner of the Gulf Central Bank is in place with the appointment of the Governor, one can envisage steady progress both in the institutional framework and in the technical aspects.Credibility will be the key issue for the new currency and therefore an important task for the Gulf Central Bank would be to set in place conditions that brace the trust of international markets. It is likely that the Gulf currency will initially be pegged to the US dollar, but once the initial phase in which the technical aspects of monetary policy conduct will be tested it is logical to expect that the exchange rate rule will be more flexible with a peg to a currency basket, either similar in composition to the SDR, or reflecting trade shares.A linked issue is whether the composition of reserves could help in conferring the new currency credibility and whether it is possible to demonstrate quantitatively that including gold would help to achieve better macroeconomic stability. We conduct a series of simulations based on past data to calculate the return on a portfolio of reserves assets with and without gold.Our results indicate that if a relatively conservative central bank should hold gold as an asset class, its potential returns for any given level of risk (i.e. at any threshold of standard deviation) increase by several points more per year than when excluding gold from its optimal portfolio. Similarly, a dollar invested (in January 1987) by a fictional conservative central bank in an international reserves portfolio with gold would have grown to $6.6 by May 2010 – which is about 1.5 times more than an international reserves portfolio without gold.

Even in a floating foreign exchange rate regime monetary authorities sometimes intervene in the currency market due to liquidity demand and foreign exchange crisis. Typically, central banks intervene using foreign currency trades and/or changing domestic interest rates. We discuss this framework in the context of an optimal impulse stochastic control model. The control and the performance equations consider interventions with swap operations in the domestic market since Central Bank of Brazil also use these operations. We evaluate risk management strategies for central bank interventions in case of crisis based on the model. We conclude that the Brazilian risk management strategy of increasing international reserves holdings and decreasing foreign exchange rate short exposure on public domestic debt after 2004 gave more flexibility to the country to manage foreign exchange rate risk in 2008 and to avoid higher interest rates to attract international capital as it was necessary in previous crises.

The International Monetary Fund (IMF) plays a substantial regulatory role in the international monetary and financial system. The IMF has been assigned a formal regulatory role in a limited number of areas such as obligations covering exchange rate policies. The Fund has a broader informal regulatory role derived from the voluntary consent of its members such as in surveillance over members’ financial sector policies and international payments imbalances. The IMF’s regulatory role is unlike that of its member governments within their own jurisdictions. The Fund’s formal and informal regulation must be constantly nurtured and renewed via peer-review processes.

The current international monetary system (IMS) is fragile because the dollar standard is rapidly deteriorating. The dual role the dollar as the dominant international money and national money cannot be easily reconciled because the US monetary authorities face a conflict between pursuing domestic objectives of employment and inflation and maintaining the international public good of a stable money. To strengthen the IMS, China has advocated the revitalization of the Special Drawing Rights (SDRs). But SDRs are neither money nor a claim on any international institution; are issued exogenously without any consideration to countries’ financing needs; and can activate international monies only though bilateral transactions. The historical record of SDRs as international reserves is altogether unimpressive. We propose instead the creation of a supernational bank money (SBM) within the institutional setting of a clearing union. This union would be a full-fledged agreement by participating central banks on specific rules of the game, such as size and duration of overdrafts, designation of countries that would have to bear the burden of external adjustment, and coordination of monetary policies objectives and at expense of the maintenance of the international public good. We also discuss structural changes that would make SDRs converge to SBMs.

The IMF must change to deal with its new functions in a changed world of interconnected global financial markets. The piece first describes the Fund's mandated process of internal reform as of the time the paper was given (2007). It then summarizes the recommendations of Mervyn Kind, Governor of the Bank of England (in a talk he gave in India) as to how the Fund should change its oversight of the functioning of the international monetary system.

Money is used as a store of value, a medium of exchange and a unit of account. Most recent analyses of currency choice in an international setting have focused on the denomination of reservesthe store of value role. However, public data are only aggregate and exclude several countries. This paper focuses on currency choice for the unit of account role, employing a detailed database on security issuance across countries, time and currencies. The paper finds a stable relation between currency choice and specific real and financial variables with different specifications for developed and developing countries, as well as evidence for persistence and network externalities. Exploiting the creation of the Euro, the paper finds a large and significant Euro liquidity effect at the cost of the dollar, especially in the early years of the life of the new currency. The estimates suggest that the Euro is making significant progress toward threatening the role of the dollar as the dominant international currency.

This paper analyzes international reserve diversification by examining changes in quantity shares of currencies held in foreign exchange reserves. It discusses alternative methodologies for constructing quantity shares and applies the preferred methodology to three sets of data on the currency composition of foreign exchange reserves: quarterly aggregate International Monetary Fund's Composition of Foreign Exchange Reserves (IMF COFER) data, quarterly IMF COFER data for industrial- and developing-country groups, and annual data for 23 individual countries that disclose the currency composition of their foreign exchange reserve holdings. What can one infer from available data about the diversification of foreign exchange reserves since 1999? The analysis suggests four conclusions: (1) The behavior of the quantity shares of the US dollar and the euro in total reserves is consistent with net stabilizing intervention; their quantity shares tend to rise when these currencies are declining and vice versa. (2) The principal driver of this stabilizing diversification over the period 1999Q1-2005Q4 is Japan. (3) The industrial countries as a group but excluding Japan do not indicate stabilizing diversification. (4) The nonindustrial countries as a group display stabilizing diversification over short periods of only a few quarters. In summary, the aggregate data conceal much diversity in the practices of individual countries.

Rumors about the actual or potential currency diversification of countries' foreign exchange holdings out of dollars are not a new phenomenon. This working paper argues that such concerns about reserve diversification are exaggerated. We present evidence that the extent of actual diversification has been modest to date. Nevertheless, the potential for reserve diversification adds volatility to foreign exchange markets and can catalyze abrupt exchange rate movements. We argue that policymakers acting in their own national interests can do something constructive to reduce the volatility introduced into foreign exchange and financial markets by rumors of large-scale international foreign exchange reserve diversification. We propose the voluntary adoption by major foreign exchange reserve holders in particular of an International Reserve Diversification Standard consisting of two elements: (1) routine disclosure of the currency composition of official foreign exchange holdings and (2) a commitment by each adherent to adjust gradually the actual currency composition of its reserves to any new benchmark for those holdings.

The deterioration in the U.S. balance of payments after 1957 and an accelerating loss of gold reserves prompted U.S. monetary authorities to undertake foreign-exchange-market interventions beginning in 1961. We discuss the events leading up to these interventions, the institutional arrangements developed for that purpose, and the controversies that ensued. Although these interventions forestalled a loss of U.S. gold reserves, in the end, they only delayed more fundamental adjustments and, in that respect, were a failure.

Foreign exchange reserve accumulation has risen dramatically in recent years. The introduction of the euro, greater liquidity in other major currencies, and the rising current account deficits and external debt of the United States have increased the pressure on central banks to diversify away from the US dollar. A major portfolio shift would significantly affect exchange rates and the status of the dollar as the dominant international currency. We develop a dynamic mean-variance optimization framework with portfolio rebalancing costs to estimate optimal portfolio weights among the main international currencies. Making various assumptions on expected currency returns and the variance-covariance structure, we assess how the euro has changed this allocation. We then perform simulations for the optimal currency allocations of four large emerging market countries (Brazil, Russia, India and China), adding constraints that reflect a central bank%u2019s desire to hold a sizable portion of its portfolio in the currencies of its peg, its foreign debt and its international trade. Our main results are: (i) The optimizer can match the large share of the US dollar in reserves, when the dollar is the reference (risk-free) currency. (ii) The optimum portfolios show a much lower weight for the euro than is observed. This suggests that the euro may already enjoy an enhanced role as an international reserve currency ("punching above its weight"). (iii) Growth in issuance of euro-denominated securities, a rise in euro zone trade with key emerging markets, and increased use of the euro as a currency peg, would all work towards raising the optimal euro shares, with the last factor being quantitatively the most important.

It is said that a country’s currency peg can become currency manipulation representing protracted government intervention in the foreign exchange market that gives it unfair competitive advantage in international trade yet prevents effective balance of payments in its trade partners. Regarding this widespread fallacy, this paper explains why currency peg is not currency manipulation even when it keeps a country’s currency undervalued. We clarify that 1) government is inherently a major player in the financial market and hence “no protracted intervention” is a meaningless guideline for designating currency manipulation; 2) exchange rate flexibility is neither a sufficient nor a necessary condition for fixing current account imbalance and hence currency peg would not prevent effective current account adjustments; and 3) as far as causing “unfair” trade advantage is concerned, currency peg is less guilty than the attempt to prevent or fix current account imbalance; and obligating a country to adjust its currency to accommodate its trade partners’ current account management would unfairly impair this country’s trade advantage.

In 2005, the Bank of Russia has made three announcements that indicate an increasing role for the euro in the Russian exchange rate strategy. On February 4 2005 the Bank of Russia announced that it has started to stabilize the daily volatilities of the Russian ruble against a dollar-euro currency basket. While the announced weight of the euro was 10% (90% dollar) by then, the Bank of Russia increased this weight to currently 40% within ten months. Bank of Russia representatives have stressed the intention to increase the weight of the euro the Russian currency basket further up to 50% but without indicating a specific time horizon. Other statements of Bank of Russia representatives have stressed the rising role of euro as intervention and reserve currency. This paper reviews the recent trends in Russian exchange rate strategy with a focus on the role of the euro.

The British foreign exchange reserves decreased by 40 percent during the period August 1996-December 1999 although the Pound Sterling is considered a floating exchange rate since it left the EMS in 1992. Since changes in the level of foreign exchange reserves are usually taken as indicators for foreign exchange interventions in the economic literature we investigate the case of the British reserves in detail. While the Pound Sterling has appreciated strongly against the Deutsche Mark in this period its exchange rate versus the US dollar has remained comparatively stable. However, the Bank of England has denied any interventions in the foreign exchange markets. We find that transactions for the government, such as repayments of Treasury bonds, account for a large part of the decrease in reserves. Valuation changes due to exchange rate fluctuations can explain only a small fraction of the decrease. This result shows that variability in official reserves is not necessarily associated with foreign exchange intervention. However, even after estimating the effects of exchange rate fluctuations and interest earnings and correcting for government transactions we still find a considerable decrease in the UK reserves that is not explained by either the Bank of England or HM Treasury.

Turkish Abstract: 'Ozel Cekme Haklari' deyimi baslica iki seyi ifade etmektedir: Birinci olarak bir 'hesap birimini' simgelemektedir. Ote yandan bir 'acik kredi' anlamina gelmektedir. Ozel Cekme Haklari Para Fonu'nun bir hesap standardi olarak gorulmelidir. Bunlarin 'kagit altin' ya da 'rezerv varliklari' olduklari yolundaki gorusler hatalidir. English Abstract: 'Special Drawing Rights' (SDRs) essentially refer to two things: First this concept symbolizes an 'accounting unit'. In other uses, it is an 'open credit'. Special Drawing Rights should be seen as an accounting standard of the International Monetary Fund (IMF). The interpretations of those SDRs are 'paper gold' or 'reserve assets' are incorrect.

An empirical analysis of the determinants of currency substitution in Egypt and the Yemen Arab Republic is provided for the period 1980-86. During this period, residents exhibited a marked preference to substitute foreign money balances for domestic balances, as indicated by their holdings of foreign currency deposits. This preference reflects changes in the expected relative returns to, and liquidity of, holdings of foreign balances. Such changes, in turn, are shown to result from intensified financial and economic imbalances, increased political uncertainties, and changes in institutional factors that affect domestic channels for acquiring and using foreign exchange resources.