International Liquidity and the Role of the SDR in the International Monetary System

December 1, 2002

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Format: Chicago

J. J. Polak, and Peter B. Clark International Liquidity and the Role of the SDR in the International Monetary System, (USA: International Monetary Fund, 2002) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper describes how the changed conditions in the international monetary system have undermined the role originally envisaged for the SDR. It argues that the concept of a global stock of international liquidity, which was fundamental to the creation of the SDR, is now no longer relevant. Nonetheless, there are good reasons to satisfy part of the growing demand for international reserves with SDR allocations: (i) there are efficiency gains, as SDRs can be created at zero resource cost, and thus obviate the need for countries to run current account surpluses or engage in expensive borrowing to obtain reserves, and (ii) there would be a reduction in systemic risk, as SDRs would substitute to some extent for borrowed reserves, which are less reliable and predictable source of reserves, especially in times of crisis.

Subject: Asset and liability management, Central banks, Commodities, Emerging and frontier financial markets, Financial markets, Gold, International liquidity, International monetary system, International reserves, Money, Reserve assets

Keywords: Allocation of A. If SDRs, Borrowed reserve, Demand, Emerging and frontier financial markets, Global, Gold, International liquidity, International monetary system, Reserve, Reserve asset, Reserve assets, SDR, SDR allocation, SDR allocations substitute, SDR mechanism, SDR obligation, SDR system, Special drawing rights, Totaling SDR, WP

Publication Details

Pages:

29
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2002/217
Stock No:

WPIEA2172002
ISBN:

9781451875126
ISSN:

1018-5941

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