Download What is wrong with the International Financial Architecture and some

What is wrong with the International
Financial Architecture and some
elements for its reform
Alfredo Calcagno
UNCTAD
3 October 2011
The International Financial System does not
comply with the goals set in Bretton Woods:
• Stable exchange rates at sustainable levels.
• Capital controls.
• Timely financing in order to smooth adjustments and
limit their costs.
• Avoiding lasting imbalances.
In addition,
• Legitimacy eroded by unfair distribution of voting
rights
• « Triffin Paradox »
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03.09.2006
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03.01.2006
Exchange rates, January 2006 – Sep. 2011
(domestic currency per dollar, January 2006= 100)
160
140
120
Argentina
Brazil
100
Chile
Colombia
80
Mexico
60
40
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03.01.2011
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03.05.2010
03.01.2010
03.09.2009
03.05.2009
03.01.2009
03.09.2008
03.05.2008
03.01.2008
03.09.2007
03.05.2007
03.01.2007
03.09.2006
03.05.2006
03.01.2006
Exchange rates, January 2006-Sep. 2011 (domestic
currency per dollar, January 2006= 100)
160
140
120
China
Indonesia
100
Malaysia
Korea
80
Thailand
60
40
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03.05.2011
03.01.2011
03.09.2010
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03.01.2010
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03.05.2009
03.01.2009
03.09.2008
03.05.2008
03.01.2008
03.09.2007
03.05.2007
03.01.2007
03.09.2006
03.05.2006
03.01.2006
Exchange rates, January 2006-Sep. 2011
(domestic currency per dollar, January 2006= 100)
160
140
120
India
100
Turkey
Pakistan
Sri Lanka
80
60
40
IMF-sponsored programmes systematically underestimate their
negative impact on GDP growth and fiscal balances
Total deficits and surpluses in current
accounts, 1990-2011 (% of GDP)
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
Deficits
2000
Surpluses
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
-4
-3
-2
-1
0
1
2
3
4
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Current account imbalances widened before the crisis,
contracted and are widening again (billion $)
2000
1500
1000
European Union, excl. Germany
500
Germany
Japan
United States
0
Fuel-exporting countries
China
Other transition economies
-500
Other developing countries: Africa
Other developing countries: America
Other developing countries: Asia
-1000
-1500
2005
2006
2007
2008
2009
2010
2011
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Possible responses: 1) At the national level
• Select an exchange rate regime that would reduce
volatility and real misalignments (managed floating vs.
« corner solutions »).
• Capital management
• Reserve accumulation (self-insurance and limiting
appreciation).
Pros and cons:
• Worked quite well in 2008
• Costs of monetary sterilisation
• Works better for avoiding appreciation than depreciation
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International reserves, 2000-2010
In billions of current dollars
In percentages of GDP
4500
25
4000
20
3500
3000
15
2500
2000
10
1500
1000
5
500
Advanced Economies
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Emerging & Developing Economies
Advanced Economies
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
0
2000
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
0
Emerging & Developing Economies
Possible responses: 2) At the regional level
•
•
•
•
•
Use of national currencies for international transactions
Clearing systems
Credit among Central Banks
Regional exchange rate system
Regional development banks
« Modularity » of cooperative measures
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Different types of financial integration
Multilateral
payments
mechanism
Clearing
house
Reciprocal
credit
agreements
(swaps)
Regional
reserve
funds
Exchangerate system
Monetary
union
Liquidity
financing
Multilateral
mechanisms
for financing
and
supervision
Finance for
defending
exchange-rates
and policy
coordination
Single
currency
and regional
Central
Bank
Yes
Desirable
Yes
Supervision
mechanism
desirable
Desirable
Yes
Yes
Desirable
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
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Possible responses: 3) At the global level
Debate within the G 20:
• Cooperation or « beggar-thy-neighbor »
• Still a recessive bias: fiscal adjustment, confidence game,
structural reforms
• Debate on capital flows, liquidity, reserves, exchange rates
• Market-oriented vs. macro prudential policies
More radical reforms?
• Multilateral agreements on exchange rates
• From regional to global
• A true international currency
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