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The international monetary system

International reserve accumulation by monetary authorities constituted the most prominent macroeconomic policy shift of the late 1990s. Accumulated reserves increased from 5.9 per cent of world gross product, or $1.9 trillion in 2000, to 14.4 per cent of world gross product or $9.3 trillion in 2010. As a share of global trade volume, reserves passed 51 per cent in both 2009 and 2015. However, since 2014 the process of accelerated reserve accumulation stopped, mirroring the decline in capital inflows. Reserves in developing and transition economies declined by $474 billion in aggregate in 2015. There is no single explanation for reserves accumulation that applies to all countries at all times. It remains to be seen whether this is a temporary interruption of the trend or a permanent change.

In July 2016, IMF staff prepared a note for the G20 outlining initial considerations on whether a greater role for the SDR could contribute to the smooth functioning of the international monetary system. In October 2016, a high-level external advisory group, consisting of prominent academics, former policymakers, and market practitioners, was convened to advise on this issue. The IMF will continue exploring whether a broader role for the SDR could contribute to the smooth functioning of the international monetary system. This work will seek to identify gaps and market failures that the SDR could help to address in light of the structural shifts in the international monetary system.

UNCTAD proposes new multilateral arrangements as the best way to correct the system’s weaknesses and biases. It suggests attenuating the role of private international capital flows as a source of international liquidity and ensuring that institutional mechanisms can effectively provide sufficient official international liquidity, thereby reducing the need for the large-scale accumulation of foreign exchange reserves as self-insurance, and ensuring that surplus countries share the burden of adjustment.