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

30 Pages Posted: 12 Feb 2006

See all articles by Peter B. Clark

Peter B. Clark

International Monetary Fund (IMF)

Jacques Polak

International Monetary Fund (IMF)

Date Written: December 2002

Abstract

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.

Keywords: International monetary system, international liquidity, SDR

JEL Classification: F33, F41

Suggested Citation

Clark, Peter B. and Polak, Jacques, International Liquidity and the Role of the SDR in the International Monetary System (December 2002). IMF Working Paper, Vol. , pp. 1-30, 2002. Available at SSRN: https://ssrn.com/abstract=880902

Peter B. Clark (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Jacques Polak

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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