Search

In the wake of several major crises, in which it played a highly controversial role, the IMF has recently come under heavy fire from various quarters. A number of proposals for reform have been put forward, of which the report of the Meltzer Commission has attracted particularly widespread attention. The authors analyze this and some competing reform proposals using the “trilemma of economic integration”, which the US Treasury Secretary, Lawrence Summers, suggested as a common framework for investigation.

Der IWF wurde nach der Rußland- und Ostasienkrise kritisiert, weil sein Eingreifen die ausländischen Gläubigerbanken, die vor allem kurzfristige Kredite vergeben hatten, aus der Verantwortung entließ. In welcher Form könnten die Banken stärker in die Pflicht genommen werden? Professor Karl-Ernst Schenk plädiert für eine weitestgehende Privatisierung des Liquiditätsrisikos der Banken durch einen Unterbau des IWF aus föderal strukturierten Liquiditätssicherungsfonds.

The squeeze in US dollar liquidity that emerged with the global financial crisis highlighted the risks associated with the current global financial system. Asia was adversely affected by the crisis not only because of its dependence on trade, but also because of its heavy reliance on the US dollar for regional and international transactions. As Asia's role in the global economy expands further, its dependence on the US dollar is bound to increase, raising even more its vulnerability to future liquidity shocks. The use of regional currencies for bilateral trade settlement could reduce such vulnerability. As demonstrated by the renminbi trade settlement scheme piloted between the People's Republic of China and Hong Kong, China, the existence of appropriate financial infrastructure could reduce the relatively larger costs of bilateral currency transactions compared with triangular transactions through the US dollar. As most central banks are securities depositories of government bonds, combining trade settlement with government bond securities settlement can also have large synergy effects without much extra costs. This proposal does not require full liberalization of the capital account or full deregulation of capital markets, and is more politically feasible in transition. As such, extending the trade settlement scheme to the rest of Asia and appending a government bond payment and securities settlement system could be a practical solution to international monetary system reform and the diversification of settlement currencies.

The paper identifies based on the monetary overinvestment theories by Wicksell (1898), Mises (1912) and Hayek (1929) monetary policy mistakes in large industrial countries issuing international currencies. It its argued that a neglect towards monetary policy reform in a world dominated by financial markets has led to the erosion of the allocation and signaling function of the interest rate, which has triggered an excessive rise of the government debt and structural distortions in the world economy. The backlash of high government debt levels on monetary policy making is argued to have led to a hysteresis of the liquidity trap. In this context, monetary reform is discussed with respect to the exit from low interest rate and high debt policies, an adaption of monetary policy rules to financial market dominated economic development, and the displacement of the prevalent world monetary system. Enhanced competition between dollar and euro as international currencies moderated by East Asia is proposed to constitute a more stable international monetary system.

Many have argued that the major source of the existing global macroeconomic imbalances are the twin deficits of the United States (US). However, there is still a debate about whether the global imbalances indeed pose a significant threat to the world economy. This matter is settled by arguing that the global imbalances acted as a "handmaiden" to the 2008 financial crisis. One way to reduce global imbalances is to reform the international monetary system and reduce the role of the US dollar as a reserve currency. Robert Triffin was one of those critical of this "exorbitant" privilege granted to the US, which makes it both a system maker and privilege taker. The Triffin Dilemma captures the fundamental instability that underlies the dollar reserve system. However, there are major obstacles to this proposal. Some analysts including Triffin cited the US security umbrella as the primary reason the US and its major allies would want to retain the role of the dollar in global trade and finance despite the underlying inequities in the system. This is related to the imbalance in global governance which is largely US-centric. The imbalance in global governance is also reflected in the dominance of the US financial system brought about by the "first-mover advantage". Because of the inertia brought about by the imbalance in global governance, economic arguments to reform the international monetary system are likely to be trumped by political reality. The paper analyzes whether current efforts in East Asia in terms of financial and monetary cooperation and rebalancing of economic growth could significantly mitigate the adverse impacts of a global system that will still be dominated by the US dollar in the foreseeable future. It also explains why the People's Republic of China (PRC) is unlikely to make significant unilateral adjustments to reduce global macroeconomic imbalances.

Tiny changes in the American monetary policy can have dramatic effects on the rest of the world because of dollar’s double role of national and international currency. This is the Triffin dilemma. The paper shows how it works through three examples: price of commodities, dollarization, and the international financial position of the US. And it makes a proposal to solve these issues, creating a more stable monetary system. In particular, it suggests the creation of an international monetary system of block regional currencies. Globalization and regionalization should be the two forces leading towards the new monetary system. The US and Europe should consider to adopt the same currency through a system of fixed exchange rates (global currency). This currency should perform its duty of anchor of the system, reducing global imbalances and gyrations in price of commodities. Developing countries, by contrast, should create regional monetary unions (regional currencies), preserving the real exchange rate as shock absorber, but gaining in terms of time consistency and credibility.

Tiny changes in the American monetary policy can have dramatic effects on the rest of the world because of its double role of national and international currency. This is what I call the Triffin dilemma, an ever green concept in international finance. In the paper I show how it works through three examples: price of commodities, dollarization, and the international financial position of the US. I argue that to solve this situation, it would be important to create a more democratic monetary system, in which all the countries have a decision weight. In particular, I think that globalization and regionalization should be the two forces leading towards the new monetary system. The main economies should adopt the same currency through a system of fixed exchange rates (global money); developing countries should create regional monetary unions (regional money), preserving the real exchange rate as real shock absorber, but gaining in terms of time consistency and credibility.

The current paper analyses the similarities between the Bretton Woods system (BWS) and the Eurozone and looks into the future of the world monetary system. The gold standard, the Keynes Plan and the White Plan are identified as the most important sources of ideas that formed the BWS. Although Keynes was not particularly successful in Bretton Woods, his plan played a decisive role later on in the critique of the BWS as well as in the design of the European Monetary System. Either system was based on the concept of fixed exchange rates which were seen as more apt for international economic relations than flexible rates. In the BWS, fixed rates were seen to be achieved by coordinating economic policies of member states and by sporadic realignments of exchange rates. In the Eurozone, only policy coordination is available to fulfil this function. The favourable experience made so far with the euro may be utilised for monetary integration in other parts of the world. The Eurozone is also considered good practice for any reform of the international monetary system. Given the diverging political and economic goals of the major currency blocks, it may be questioned, however, whether the success of the euro also furthers the idea of developing a single world currency.

Financial crises can have a severe impact on the real side of the economy with countries losing up to 20 percent of GDP. The paper studies rules that prevent financial instability and currency crises. These include institutional arrangements for a solid banking system, prudent regulations and appropriate principles of monetary policy. The paper studies the role of the IMF in light of the past experience in preventing currency crises and a systemic breakdown of the world's financial system and points out necessary IMF reforms. It discusses how the IMF should adjust to the structural changes in the world economy.

The frequency and severity of financial and currency crises in emerging market economies since the mid-1990s have increasingly eroded confidence in the well-functioning of international capital markets. Cross-border currency transactions recorded a spectacular growth, reaching US$ 1500 billion per day in the late 1990s or about two thirds of Germany's annual GDP. About 80 percent of these transactions involve round-trips of seven days or less. Globalization critics conclude that international financial transactions have little to do with real economic activity, such as foreign trade, and are predominantly speculative in nature. In order to tame speculation and protect emerging market economies from the vagaries of global financial markets, globalization critics demand radical changes in the international financial order. Policymakers, notably those in major industrial countries, are criticized for remaining committed to liberalized financial markets. However, a fundamental reconstruction of the financial architecture does not only lack political support. As argued below, some radical reform proposals are also flawed from an economic point of view. Yet policymakers are to be blamed for having delivered at best partly what they had promised after recent financial crises, namely to adjust the regulatory framework to increased global capital mobility. In important respects, the process of reforming the international financial architecture appears to be stalled, mainly because of conflicting interests of major political players.

Der Vorwurf von Globalisierungsgegnern, der IWF und die Weltbank trügen einen wesentlichen Teil der Verantwortung für weltweite Armut und gehäufte Finanzkrisen, ist nicht haltbar. Der Einfluss der Bretton- Woods-Institutionen auf die Wirtschaftspolitik und die wirtschaftliche Entwicklung ihrer Mitglieder ist erheblich geringer als häufig unterstellt wird. Aber auch an ihren eigenen Ansprüchen gemessen ist die Erfolgsbilanz von IWF und Weltbank recht dürftig. Eine Reform beider Institutionen ist dringend geboten. Statt sich auf ihre Kernkompetenzen bei der makroökonomischen und finanziellen Stabilisierung (IWF) bzw. der Armutsbekämpfung (Weltbank) zu konzentrieren, waren beide Institutionen bestrebt, ihren Aufgabenbereich auszuweiten. Die Arbeitsteilung zwischen ihnen verwischte sich dadurch zunehmend. Der Versuch beider Institutionen, in den Mitgliedsländern wirtschaftspolitische Reformen durchzusetzen, indem finanzielle Hilfe an Bedingungen (Konditionalität) geknüpft wurde, hat sich als wenig wirksam erwiesen. Die in Washington konzipierten Reformprogramme sind von den Mitgliedsländern häufig nicht implementiert worden. Der Erkenntnis, dass Entwicklungshilfe nur dann gesamtwirtschaftliche Wachstumsprozesse begünstigt und Armutsprobleme lindert, wenn sie auf arme Länder mit guter Wirtschaftspolitik konzentriert wird, ist von der Weltbank in der täglichen Praxis bisher kaum Rechnung getragen worden. Die Erfolgsmeldungen über positive Projektergebnisse können nicht darüber hinwegtäuschen, dass ein produktiver Ressourceneinsatz wegen der Austauschbarkeit von Projektmitteln (Fungibilität) im Empfängerland nicht gewährleistet ist. Die Behauptung der Weltbank, ihre Finanzhilfen seien in jüngster Vergangenheit verstärkt Ländern mit guter Wirtschaftspolitik zugeflossen, stellt sich als falsch heraus, sobald man die irreführenden statistischen Durchschnittsangaben der Weltbank um zwei Sonderfälle (Kap Verde und Honduras) korrigiert. Die Konditionalität des IWF hat selbst dort keine unzweifelhaften Erfolge aufzuweisen, wo sie – wie bei der Inflationsbekämpfung und dem Abbau von Leistungsbilanzdefiziten – am ehesten zu erwarten gewesen wären. In den neunziger Jahren sind mehr IWFProgramme gescheitert als in den Jahren zuvor. Ein Grund könnte darin liegen, dass die Hauptanteilseigner den Entwicklungsländern eine stärkere Mitsprache in den Entscheidungsprozessen im IWF verweigern. Dem Vorwurf, die Lasten der Krisenbewältigung einseitig auf die betroffenen Länder geschoben zu haben, ist erst kürzlich Rechnung getragen worden. Ob sich der Vorschlag der Geschäftsführung des IWF, die privaten Gläubiger in ein „Insolvenzverfahren“ zur Überwindung von Überschuldung einzubinden, durchsetzen lässt, ist weiterhin offen. Die Weltbank muss ihren traditionellen Auftrag der Armutsbekämpfung effektiver als bisher erfüllen. Die länderbezogene Armutsbekämpfung sollte auf eigenständig konzipierten Reformprogrammen der Entwicklungsländer basieren. Bei der Bereitstellung armutsrelevanter Leistungen mit dem Charakter internationaler öffentlicher Güter – wie der Aids-Bekämpfung – könnte die Weltbank eine finanzielle Mittlerfunktion wahrnehmen. Der IWF müsste sich auf die Stabilisierung der internationalen Finanzmärkte konzentrieren und armutsrelevante Aufgaben der Weltbank überlassen. Die nachträgliche Konditionalität des IWF sollte soweit wie möglich durch vorab festgelegte Qualifizierungskriterien ersetzt werden. Die Kreditbedingungen wären zudem so zu staffeln, dass eine dauerhafte Inanspruchnahme von Finanzhilfen entmutigt wird. Schließlich hat der IWF dabei mitzuwirken, durch seine Überwachungsaktivitäten und verbesserte Frühwarnsysteme Finanz- und Währungskrisen möglichst zu vermeiden.

Die Forderungen von Globalisierungskritikern nach einem radikalen Umbau der internationalen Finanzmarktordnung sind von den wirtschaftspolitischen Entscheidungsträgern aus guten Gründen abgelehnt worden. Vorzuwerfen ist den Entscheidungsträgern allerdings, dass auch ökonomisch sinnvolle Anpassungen des ordnungspolitischen Rahmens an die gestiegene internationale Kapitalmobilität wegen inner- und zwischenstaatlicher Dissonanzen nicht recht vorangekommen sind. Im Vordergrund dieses Beitrags stehen die Positionen deutscher Instanzen in der andauernden Reformdebatte. Im internationalen Kontext scheint vor allem die Bundesbank in wichtigen Fragen auf verlorenem Posten zu kämpfen. It is for good reasons that economic policymakers have rejected demands by globalization sceptics to fundamentally restructure the international financial architecture. However, policymakers are rightly criticized for having made only limited progress in adjusting the regulatory and institutional framework to increased international capital mobility. This failure is largely due to conflicting interests within and between major countries. This paper focuses on the positions of German authorities in the ongoing reform debate. In the international context, especially the Bundesbank seems to fight a losing battle with regard to several issues at stake.

The IMF must change its sanction and incentive systems so that the next crisis is more likely to be prevented. It should concentrate more on ex ante prevention, which can be done by clearly specifying the rules that will be applied ex post. It should also rely more on automatic mechanisms that operate through the market in order to get to the roots of a potential crisis. Ex post, i.e., when a currency crisis has already occurred, the IMF can only play a limited role in mitigating the crisis. The IMF cannot play the same role for sovereign creditors as national institutions do in the case of illiquidity of domestic banks and firms. It cannot take over the role of a bankruptcy court judge. The IMF cannot credibly play the role of a lender of last resort. First, the lender of last resort lends to financial institutions, while the IMF lends to national governments when they run into trouble. Second, the national lender of last resort can print money and can thus credibly stop a crisis. For the IMF, this is not possible. Therefore, the central banks will have to play the role of a lender of last resort in a coordinated action if a systemic crisis for the world economy develops. The IMF is involved only initially, somewhat easing the task of the true lender of last resort, the central banks. Ex post, the crisis has to be mitigated in such a way that dealing with the crisis does not generate processes and behavior that give rise to the next currency crisis. The IMF should avoid setting wrong incentives. -The IMF should not make up for national political mistakes and national institutional deficiencies. -The IMF should change its policy and not implicitly defend a pegged exchange rate. -The IMF should stop lending to countries that are in arrears to private creditors and bondholders (sovereign arrears) and should return to its previous policy. -The IMF should rule out credits to sovereign debtors if the government of a country takes over guarantees for nonperforming private loans, thus socializing private default risks. -The IMF should think about scaling down its level of operations. This recommendation is in stark contrast to the somewhat expansionist doctrine now being propagated by the IMF. Ex ante, some new rules should be established. In analogy to the "polluter-pays principle" of environmental economics, a "troublemaker-pays principle" should be used. This would hopefully internalize the social costs caused by countries behaving in a manner that generates instability and adds to the risk of a systemic crisis. - The IMF should improve its early warning system, create more transparency, and provide more information, including high-frequency debt-monitoring systems. The international community should intensify discussions on standards that countries would have to follow. -The IMF should specify the sanctions to be levied when standards are not respected. A penalty rate should be charged if additional credit is provided. Requiring collateral would also be a strong incentive to sovereign borrowers to build up assets. - The IMF should define the policy it would pursue in the case of a crisis more credibly. It should move away from the discretionary decisions of its case-by-case approach (favored by US pragmatism) and bind itself by rules (favored by the Europeans). One way to improve credibility of IMF policy would be to rely more on automatic mechanisms that internalize the external effects of national instability behavior. Thus, the IMF should not be a silent supervisor who deliberates behind closed doors. It is better to blow the whistle and apply the brakes before the train crashes. Involving the private sector in the case of a crisis is an important means of internalizing the social costs of instability. In contrast to the mostly used American-style bonds, British-style trustee deed bonds are more appropriate to manage crises as they include sharing clauses and majority rules.

The financial crises in Asia have shown the dangers resulting from globalised financial markets without an appropriate international legal and political framework. Effective regulations and supervisory mechanisms are called for. *** DIRECT SUPPORT *** A02GP124 00004