G-20 annual progress card on the International Monetary System reforms

EDWIN TRUMAN, senior fellow at the Peterson Institute for International Economics tracks the progress made by the G-20 over the past year on reform of the international monetary system over five key areas: i) surveillance of the global economy and financial system, ii) the international lender-of-last-resort mechanisms (global financial safety nets), iii) he management of global capital flows, iv) reserve assets and reserve currencies, and v) IMS governance.
In his policy brief for the PIIE Quarterly, “G-20 Reforms of the International Monetary System: An Evolution”, he states that little progress had been made on most of the topics except for commitments by a few countries to allow their automatic stabilizers to operate in the current slowdown and marginal steps forward on the issues of the lender-of-last-resort issues, and codification of the progress made on the management of capital flows. He concludes that although the G-20 summit at Cannes resulted in some useful mutual education, there wasn’t much more in terms of concrete accomplishments.

SDR as a reserve currency

JOSEPH E GAGNON, fellow at the Peterson Institute for International Economics argues that IMF’s Special Drawing Right (SDR) could serve as a solution to address the asymmetry of international reserve assets and enhance reserve diversity and reduce distortions caused by excessive reliance on the US dollar as the main reserve asset.
In his article, “A Currency System for a Multi-Polar World”, he outlines his 2-step proposal for the IMF

1. expand the SDR basket to include the currencies of all countries that have sound macroeconomic policies and whose bond markets meet minimum standards of openness and supervision;
2. create synthetic SDR bonds backed by medium-term sovereign bonds denominated in the currencies of the SDR basket.

He states that several dozen countries would qualify for inclusion in the SDR, including almost all advanced countries and a number of developing countries, and the IMF had acknowledged the benefits of a broader SDR basket for reserve diversification and for financial development in emerging markets. He also states that synthetic SDR bonds could be backed by sovereign debt in the currencies of the SDR basket and tradable among investors like exchange-traded funds (ETF), providing investors with a standardized asset that provides both a high degree of diversification and a deep and liquid market.

Lumbering out of policy inertia on India's Financial sector

ARVIND SUBRAMANIAN, fellow at the Peterson Institute for International Economics recommends greater interaction between the government and the Reserve Bank of India on strategic and long-term issues such as the liberalization of the financial sector and that of the capital account. In an op-ed in The Business Standard, "What Globalization Strategy for India?", he states that a combination of factors such as greater availability of foreign capital seeking higher returns in India and a domestic political economy that favored foreign capital would ensure that India moved to a model based on reliance to foreign capital by default and this called for a jolt out of policy inertia and a greater co-ordination between the key stakeholders on strategic issues.