For Global Growth and Stability, Mobilize the Reserves

If wars, as Clemenceau famously said, are too important to be left to generals, development is too important to be left to finance ministers, central bankers, the IMF and World Bank. Next month's gathering on ``Finance for Development'' in Monterrey, Mexico is a perfect opportunity for other concerned players, including presidents and prime ministers, to assert their interests.

The international community has agreed on a set of modest goals for global development - reducing poverty and illiteracy and improving health. But this requires a substantial increase in assistance at a time when the paltry levels of aid provided by rich countries continue to fall. The US, the world's richest country, is the stingiest. As long as the world's (economically) advanced countries maintain this attitude, innovative approaches to financing economic development - and global public goods more generally - need to be tested.

One idea receiving attention is a new form of global money akin to the IMF's Special Drawing Rights (SDRs). SDRs are a kind of global money, issued by the IMF, which countries agree to accept and exchange for dollars or other hard currencies. The underlying idea is simple: every year, countries around the world set aside reserves as insurance against contingencies such as an abrupt downturn in foreign lenders' sentiment or a collapse of export prices. As a result, some global income sits around rather than financing investments that poor countries need.

The amounts held in reserves are huge - roughly $1.6 trillion worldwide. Countries like to keep their reserves growing in tandem with growth in imports and other foreign liabilities. If these liabilities grow by 10% annually, countries need to set aside an additional $160 billion.