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Special Drawing Rights are reserve assets which ought to provide liquidity in times of a country’s financial distress. It is a potential claim on freely usable currencies of International Monetary Fund member countries. This article examines the possible effects of a global Special Drawing Rights implementation by the International Monetary Fund in case of a collapse of one of the major currencies. The question addressed is if a distressed fiat currency can be bailed out effectively by triggering the designation mechanism to the International Monetary Fund member countries The results indicate that the liquidity benefit per created Special Drawing Rights unit would proportionally increase with the rate of money supply.

This review draws pragmatic lessons for developing countries to address COVID-19-induced recessions and to sustain a developmental recovery. These recessions are unique, caused initially by supply disruptions, largely due to government-imposed 'stay-in-shelter lockdowns'. These have interacted with falling incomes and demand, declining exports (and imports), collapsing commodity prices, shrinking travel and tourism, decreasing remittances and foreign exchange shortages. Highlighting implications for employment, wellbeing and development, it argues that governments need to design comprehensive relief measures and recovery policies to address short-term problems. These should prevent cash-flow predicaments from becoming full-blown solvency crises. Instead of returning to the status quo ante, developing countries' capacities and capabilities need to be enhanced to address long-term sustainable development challenges. Multilateral financial institutions should intermediate with financial sources at low cost to supplement the International Monetary Fund's Special Drawing Rights to lower borrowing costs for relief and recovery.

In the postcrisis period, some foreign policymakers accused the Federal Reserve of engaging in “currency wars” and inadvertently creating “financial spillovers,” arguing that these were especially consequential given the dominant role of the U.S. dollar in international trade and finance. This lecture analyzes these critiques, and argues: (1) little support exists, either theoretical or empirical, for the currency wars claim; (2) the United States and its trading partners should use nonmonetary tools for dealing with spillovers; and (3) the benefits of the dollar standard to the United States and the world are considerably more symmetric than in the Bretton Woods era.

The outcome on the debt section of the Addis Ababa Action Agenda saw setbacks from the identification of the need to address the governance flaws in the sovereign debt resolution process agreed in the Doha Financing for Development Conference in 2008. On systemic issues, there was also limited progress in reducing the boom-bust patterns in international financial flows behind the most dislocating development reversals in poor countries.

We analyze how the role of different national currencies as international reserves was affected by the shift from fixed to flexible exchange rates. We extend data on the currency composition of foreign reserves backward and forward to investigate whether there was a shift in the determinants of the currency composition of international reserves around the breakdown of Bretton Woods. We find that inertia and policy-credibility effects in international reserve currency choice have become stronger post-Bretton Woods, while network effects appear to have weakened. We show that negative policy interventions designed to discourage international use of a currency have been more effective than positive interventions to encourage its use. These findings speak to the prospects of currencies like the euro and the renminbi seeking to acquire international reserve status and others like the U.S. dollar seeking to preserve it.

For quite some time the international monetary system has been incapable of deliv-ering external balances or facilitating smooth adjustments of large imbalances. Thereis a convergence of interests for the status quo: the United States is keen to preservethe benefits it receives as the key-currency country, while creditor countries continueto accumulate dollar-denominated assets and sterilize increases in the foreign com-ponent of the monetary base. This special issue of Open Economies Review revisitsthe mechanism of the existing international monetary system and, in the process,highlights what is not working and what could be done to fix it. The planning of theissue took place in 2010, after the subprime financial crisis but before the onset of thesovereign debt crisis. The severity of the latter and the potential that its resolutionmay lead to a break-up of the euro area underscores the fragility of the internationalmonetary system and the urgency to reform it. In what follows I concentrate on threemain issues: competition among international currencies, the deteriorating dollarstandard and Special Drawing Rights, and rules and burden sharing of externaladjustment.1 International CurrenciesNational currencies tend to dominate foreign currencies as means of exchange partlybecause the bulk of transactions is local and partly because governments discriminatein favor of the currency they issue. Currency substitution — the replacement ofdomestic money with a (better) foreign money — is a slow process even when it is

The global financial crisis, the weakening role of the dollar and the increasing international importance of China are calling for a reform of the international monetary system in the direction of greater multilateralism. To this end, we advance a proposal based on a greater role of the Special Drawing Rights (SDRs) and focus on the potential benefits that these could bring to Low-Income Countries (LICs). SDRs would be created exogenously - with a disproportionate allocation to LICs -, but also endogenously, through a substitution account and an overdraft facility. Finally, the paper discusses the superiority of this proposal in the context of the current foreign assistance framework.

We provide new evidence linking foreign currency exchange rates and cash flows in and out of US-based international mutual funds. Our results suggest that changes in exchange rates and the associated volatility of those changes are important considerations when investors decide to purchase or redeem international mutual fund share. Specifically, we find that increased exchange rate volatility is positively and significantly related to 1- and 3-year net cash flows into and out of funds. We also document a negative relationship between short-term (previous year) and longer-term (previous 3 years) changes in foreign currency values.

In the existing global financial system, the US private central bank controls the right to issue international currency, while the rest of the world have to involuntarily leave their destiny to such system. In the current financial crisis, American government evaded and deviated from due regulation. It is virtually a robbery of other countries as well as a serious infringement upon international human rights. In such a situation, other countries should stick to the international community standard and the protection of international human rights to fairly distribute the interest deriving from the right to issue international currency, and establish a monetary exchange mechanism; or abide by the principle of “one world, one currency” and accordingly come up with a common international currency, or form a monetary union to safeguard the economic sovereignties; or enhance the due position, rights and interest of the developing economies in the existing international financial system; or strengthen efforts in reforming and building the regime of international financial regulation to prevent people’s legitimate property, rights and interest from being infringed.

International Organizations seem to be immortal or at least long-lived. In this paper several factors which may be responsible for this fact are put forward and then analyzed by studying the empirical case of the Bank for International Settlements (BIS), which has now survived for seventy-eight years all threats to its existence. This is the more surprising since it was heavily attacked by the government of the most powerful country of the world, the USA for some years. This country demanded the dissolution of the BIS at the Bretton Woods Conference in 1944 as a precondition for allowing nations to join the planned International Monetary Fund. Before this the Bank was also able to master the crisis resulting from the demise of the gold (exchange) standard and the end of the German reparation payments agreed on in the Dawes and Young Plans, both consequences of the Great Depression. The Bank even survived the events of the Second World War threatening it, and reacted creatively to the crisis posed by the founding of the European Monetary Union. It is shown that all suspected factors favoring the survival of international organizations were present in the case of the BIS.

The members of the United Nations have agreed to the Millennium Development Goals, but there remains a major challenge of funding these ambitions. This paper examines alternative sources of development funding: global taxes, new Special Drawing Rights, the International Finance Facility, a global lottery, and increased private transfers. The paper suggests that “global public finance” can contribute to the public debate about these alternatives. It indicates how progress can be made without unanimity, that subsidiarity can increase national acceptance, and draws attention to the implications of the changing world distribution of income.

The International Monetary Fund’s structure and rules are based on the quota system that was constructed when the Fund was set up in 1946. Quotas affect contributions and resource availability at the Fund, access to resources, the distribution of Special Drawing Rights, and voting rights. Despite periodic reviews and modifications, the quota system has gradually been eroded and undermined. The fundamental problem is that a single system is attempting to serve four separate and incompatible functions. We illustrate how this erosion has taken place, and how an unreformed quota system will compromise the future operations of the IMF and the international monetary and financial system. Although the difficulties associated with reforming quotas are myriad and complex, the legacy of an unreformed quota system may be profoundly undesirable. We argue that a refined IMF structure must accommodate a clearer separation of a member’s contributions to the IMF, its access to IMF resources, and its voting rights at the institution.

Imbalances in the global economy emanating from the appreciation of the dollar, unnervingly large fiscal and current account deficits in the US economy, steeply rising foreign exchange reserve levels in Japan and the emerging-market economies of Asia created a worrisome policy environment for the global economy. Repeated warning signals were flashed by the International Monetary Fund (IMF) regarding these imbalances. This paper first delves into the causes and effects of the global economic imbalances. As the dollar correction began, the initial reaction of the central banks and the currency markets was tentative. With the continuance of the dollar correction, the global currency environment began changing. The second focus of this paper is on the impact of dollar correction on the three major Asian economies, namely the yen, the renminbi yuan and the won. It this context, it also analyses the recent currency devaluation of the renminbi yuan and the change in the exchange rate regime announced by the People's Bank of China and the implications of this change.

In this research, we tackled the emergence and stability of key currency when economic strength countries was equal. We propose an artificial international market model with currency credibility as the standard selected for payment. We constructed multiple markets based on the X-Economy System. Through simulations, we found the possibility that key currency could emerge in a symmetric situation, and market and the specialization of production could be stabilized by foreign exchange trade.

Since the Mexican crisis in 1994, international financial markets are characterised by frequent turbulence. The two most important international organisations in that field, the World Bank and the International Monetary Fund, have been unable to provide sufficient stability. Surprisingly, the World Bank is in deeper trouble than the IMF. The decreasing importance of public capital flows has made the World Bank much less important than it used to be. Globalisation has led to increased private flows to the developing world, primarily in the form of foreign direct investment. In the long run, there will not be an important function for the World Bank any more. The opposite assessment has to be made for the IMF. The more globalisation progresses, the greater the need for an IMF. However, this does not mean that the Fund will survive in its current form. International financial markets have gained in importance, but they still lack many of the features that characterise the national financial sector. If globalisation shall be continued, we need those governance structures, e.g. a lender of last resort, at the international level. Markets need rules and regulations, and today these are often not existent at the international level. The need for an IMF will even rise, but it will have to be a different one.

This article begins by analyzing the hirtorical importance of the introduction of the euro, the convergence criteria for membership in the European Monetary Union, the merits and defects of the euro as an international rival to the dollar, and the characteristics that have made past international currencies great. It goes on to consider the institutional gap in the world system arising from the absence of an official world currency and the threat to stability that arises in transition periods when a new international reserve asset or currency is phased in. It is argued that the introduction of the euro will involve diversification from the dollar that will require multilateral attention to the dollar-euro exchange rate.

The lending criteria applied by the IMF and the World Bank have been converging for some time. Considering also that since the floating of exchange rates in the early seventies the IMF seems to have lost in importance as a monetary institution, debate is growing on the question of whether the Fund needs to correct its policy course, to be assigned new tasks by its member countries or even to be amalgamated with the World Bank into one efficient development aid institution.

Exchange rate reforms in developing countries have often aimed at floating the exchange rate in an attempt to unify the official and parallel markets for foreign exchange. This paper examines the short-term dynamics associated with such reforms. The analysis shows that the behavior of the parallel market premium in the periods leading to reform depends crucially on expectations about the postreform policy stance. The paper also draws the implications of the analysis for the behavior of foreign reserves, output, and the real exchange rate.

Among the various limitations put by the IMF on the free use of Special Drawing Rights (SDRs) is the reconstitution requirement which binds participants in the Special Drawing Account to maintain a stipulated average level of allocated SDRs. Using the example of Zambia which is representative for many developing countries, this article displays the adverse effects which arise from the present reconstitution rules and proposes a possible modification.

The model presented here is the first model of the German capital account which simultaneously determines all short-term and long-term capital movements, the change in foreign exchange reserves and the DM/dollar exchange rate.

To overcome the lack of international liquidity, those who attended the Rio de Janeiro monetary conference agreed to introduce special drawing rights. This measure stemmed from an initiative taken by the Group of Ten. It is considered a milestone in international monetary policy. INTERECONOMICS was able to interview Dr Otmar Emminger, member of the Board of Governors of the Deutsche Bundesbank and Chairman of the working party of the Group of Ten, about the reasons for introducing this new instrument and its probable effects.

A link between the creation of Special Drawing Rights and the financing of development aid is under discussion in order to meet the developing countries’ demands for an adequate supply with international liquidity. This article expounds critically a number of objections raised against this concept.

Sonderziehungsrechte und Inflation. — Der Aufsatz uberpruft die Frage, ob die Schaffung von Sonderziehungsrechten inflationAre Konsequenzen hat. Es wird ein Modell formuliert und die Analyse auf die Frage konzentriert, in welcher Weise neu geschaffene Sonderziehungsrechte in das monetAre System eines Landes Eingang finden. Die wichtigsten Schlu\folgerungen der Analyse sind: 1. Die blo\e Zuteilung von Sonderziehungsrechten wirkt nicht inflationAr. 2. Das gleiche gilt fur die Verwendung von Sonderziehungsrechten. Allerdings ermoglicht diese es, eine hausgemachte Inflation dadurch zu verlAngern, da\ sie schlie\lich auftretende zusAtzliche Handelsbilanzdefizite abdeckt. Doch selbst dann kann die Schaffung von Sonderziehungsrechten nicht als die Triebkraft der Inflation bezeichnet werden, denn Ursache der Inflation bleibt der Erwerb heimischer Aktiva durch die geldpolitischen Instanzen.

An empirical study showing that countries' reserve holdings are sensitive to the rates at which they can borrow on international financial markets, this analysis confirms the view that holding major currencies as reserve assets has costs that are frequently unrecognized. During 1978-82 for 24 sample countries, and during 1978-86 for the same sample less those countries with debt-servicing difficulties, international borrowing costs were found to be a highly significant determinant of reserve holdings--particularly before 1982 for the group that were to have debt difficulties.

JEFF MADURA Florida State University Special Drawing Rights (SDR's) were initially created to serve as a reserve asset for central banks. The nature of their multi-currency composition encourages their application to bond denomination in order to reduce exchange rate risk. Since 1974, eight internationally placed bonds have been denominated in SDR's valued at about SDR 263 million in aggregate. Also SDR-denominated certificates of deposit (CD's) have been issued in the U.S., Great Britain, and Japan. The recent revised formula defines the SDR in terms of five currencies (compared to 16 currencies before the revision) which promises to encourage further use of the simplified composite as a unit of account. As its role expands, traders within the international capital markets should be aware of its weighting structure. The SDR is defined by summing the products of the component currency exchange rates and their respective allotted "units." These "units" were determined by the International Monetary Fund to achieve the initially desired weights for each currency in comprising the SDR value. Although the "units" are held constant over time, the exchange rates of the currencies comprising the SDR fluctuate, forcing the weights to change. The weight computation will be described shortly. Table 1 compares the initial weights of the simplified SDR on its commencement (January 2, 1981) to the weights six months later (June 2, 1981). Notice that the dollar's weight has increased at the expense of the other currencies, a result of the dollar's strength in the first half of 1981. tant implications for hedging. Consider a onemonth CD issued by U.S. bank to a firm in Japan on June 2, 1981, which has a par value equivalent to $1,000,000. The issuing bank could have hedged by purchasing the SDR currencies forward in the correct proportions. If it recognized the actual weights at the time of issuance, it would have enacted a risk-free hedge. However, if it presumed that the weights initially installed into the SDR at its commencement were still intact, it would have attained an overhedged position for all the currencies other than the dollar. The hedged excess amounts to the equivalent of $40,600. At this time, several points are noteworthy. As time progresses, the weights may diverge further from their initial level causing greater hedging mistakes. The size of the hedging error in the example provided is not affected by the maturity of the CD. Yet, the costs of using the forward market as well as the markets limitations should be realized. Transaction costs in the forward market were not considered since the analysis would derive the same implications. The scenario described is intended not to deter use of the SDR as a unit of account, but to suggest the correct hedging approach for SDR-denominated CD's. This requires the precise weight computations for the currencies at the time a CD was issued. The weight for a component currency at any given moment can be found by first multiplying its exchange rate by its allotted "units." This product represents a percentage of the SDR value which serves as the actual weight measure. Recognition of the weight changes has imporTABLE 1

NE OF THE KEY ELEMENTS of the International Monetary Fund, agreed at Bretton Woods, was the multipurpose quota.' The purpose of this paper is to describe the role and the operating significance of Fund quotas. This will be done by examining (1) the nature of and the relation between the functions ascribed to quotas, (2) the determination of quotas for original members at Bretton Woods and for the members admitted after the Fund commenced operations, (3) the adequacy of quotas, in the light of their functions and of economic developments since Bretton Woods, and (4) the adjustment and review of quotas.

CANADA adopted a fluctuating exchange rate system in September 1950.1 Since then, the foreign exchange value of the Canadian dollar has been determined by the interplay of market forces, except for some official intervention in the exchange market reported as intended to prevent excessive short-term fluctuations. Since 1952, this official intervention has been exercised on only a moderate scale, and official sales or purchases of exchange by the Canadian Exchange Fund Account have not been the dominating influence in determining exchange rate fluctuations from one quarter to another. The combined current and long-term capital account has shown substantial quarterly net balances. These balances have varied between plus $200 million and minus $200 million, and have exceeded $100 million, or about 10 per cent of Canada's quarterly export receipts, in nearly half of the quarters. In view of these relatively large swings in the current and long-term capital account and of the moderate extent of official intervention in the exchange market, the stability of the Canadian dollar during the last eight years is remarkable. Since 1952, the exchange rate has remained within the range of US$1.00 to US$1.06, and the change from one quarter to another has never exceeded 2 per cent. It will be argued below that this high degree of stability was chiefly the result of the responsiveness of equilibrating short-term capital movements to changes in the exchange rate.