DJ Strauss-Kahn Raises Prospect Of IMF Global Reserve Asset
By Tom Barkley
Of DOW JONES NEWSWIRES
WASHINGTON (Dow Jones)--Dominique Strauss-Kahn, managing director of the International Monetary Fund, envisioned the prospect Friday that the fund could one day be the global provider of reserves to countries.
Strauss-Kahn, in a broad-ranging speech on the future mandate of the IMF, stopped short of calling for a fund-created reserve asset, but said it is a longer-term issue worth considering.
"One day, the fund might even be called upon to provide a globally issued reserve asset, similar to--but in important respects different from--the SDR," he said in prepared remarks to the Bretton Woods Committee's annual meeting, referring to the special drawing rights that countries use to hold reserves with the fund.
While Strauss-Kahn said a truly global reserve currency isn't close to becoming reality, having other alternatives to the dollar "would limit the extent to which the international monetary system as a whole depends on the policies and conditions of a single, albeit dominant, country."
Still, he praised role the dollar played as a "safe haven asset" during the crisis and said the current international monetary system has proved resilient.
But more must be done in the near term to strengthen the system and the stability of reserves, said Strauss-Kahn.
"The challenge ahead is to find ways to limit the tension arising from the high demand for precautionary reserves on the one hand, and the narrow supply of reserves on the other," he said.
With countries expected to continue to build up reserves to guard against external shocks, Strauss-Kahn reiterated the idea that the IMF could provide some sort of insurance as an alternative.
One possibility would be to make the Flexible Credit Line, designed as a backstop for countries with sound economic policies, even more flexible and attractive to remove the stigma, he said. Another is a multicountry credit line that would offer liquidity to groups of countries facing a crisis.
The IMF executive board reviewed ideas about expanding the fund's mandate earlier this week, and "most Directors were interested in considering innovative means of global insurance, including exploring the merits of multi-country credit lines and support to regional liquidity pools," according to a statement.
Recognizing growing tensions in the international reserves system, many directors also supported considering what the fund could do to address the issue, including assessing reserve adequacy and offering alternatives to the accumulation of reserves.
But while a number of directors wanted to work toward a more balanced multicurrency system, including the possibility of an enhanced role for the SDR, others noted that would require major changes to the fund's quasicurrency.
"Directors acknowledged that these issues require much deeper debate and for the most part are long-term ones," the statement said.
Several countries, including China and Russia, have been calling for an alternative to the dollar as a reserve currency, and pointed to the SDR as a possibility.
A little-known provision in the IMF Articles of Agreement calls on member countries to collaborate on reserve policies to make the SDR "the principal reserve asset in the international monetary system," according to a staff report released along with Strauss-Kahn's speech.
But the report also notes major obstacles to making the SDR, which consists of a basket of major currencies and can only be trade within the official sector, into a reserve asset.
Given that the SDR isn't a currency and the IMF isn't set up as a central bank, a senior IMF official told reporters on a conference call to discuss the report that "if the fund were to ever be such a supplier--and I don't take that as a given-- there would certainly have to be a very different fund than the one we know right now."
-By Tom Barkley, Dow Jones Newswires; 202-862-9275; tom.barkley@dowjones.com |
