The IMF’s Next Mission?

The world economy is increasingly threatened by volatile market reactions to global imbalances at a time when the IMF has largely lost its original raison d’être as the world’s central monetary institution. These two developments should stimulate the Fund to claim a new purpose as the world’s reserve manager.

The world economy is increasingly threatened by volatile market reactions to global imbalances at a time when the IMF has largely lost its original raison d’être as the world’s central monetary institution. These two developments should stimulate the Fund to claim a new purpose as the world’s reserve manager.

In the 1960’s, the IMF managed the problems of all the major economies, and in the 1980’s and 1990’s, it developed as a crisis manager for emerging markets. But that job is much harder now, because of the size of some of the big emerging economies. And, in any case, the focus of financial nervousness is shifting back to the world economy’s core countries, such as the United States, the United Kingdom, and Australia, which are funding large current account deficits with surpluses from much poorer countries.

These surpluses reflect high savings rates, both in the private and the public sector, in oil-producing and emerging Asian economies, which have resulted in their rapid accumulation of foreign reserves. But this is hardly a blessing for these countries. Their reserves have become so large that even the announcement of a small shift in assets – say, from euros to dollars – can move markets and cause disruptions and panics. Like past reserve regimes that offered a choice of assets (for example, the dollar, the pound, and gold in the interwar period), instability is inherent.

To continue reading, please log in or enter your email address.

To access our archive, please log in or register now and read two articles from our archive every month for free. For unlimited access to our archive, as well as to the unrivaled analysis of PS On Point, subscribe now.

required

By proceeding, you agree to our Terms of Service and Privacy Policy, which describes the personal data we collect and how we use it.

Log in

http://prosyn.org/bJ6lLNx;

Cookies and Privacy

We use cookies to improve your experience on our website. To find out more, read our updated cookie policy and privacy policy.