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Time for a Visible HandLessons from the 2008 World Financial Crisis$
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Stephany Griffith-Jones, José Antonio Ocampo, and Joseph E. Stiglitz

Print publication date: 2010

Print ISBN-13: 9780199578801

Published to Oxford Scholarship Online: February 2010

DOI: 10.1093/acprof:oso/9780199578801.001.0001

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PRINTED FROM OXFORD SCHOLARSHIP ONLINE (oxford.universitypressscholarship.com). (c) Copyright Oxford University Press, 2021. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in OSO for personal use. date: 21 June 2021

Reforming the Global Reserve System 1

Reforming the Global Reserve System 1

(p.289) 16 Reforming the Global Reserve System1
Time for a Visible Hand

José Antonio Ocampo

Oxford University Press

Ocampo argues that the current global reserve system exhibits three fundamental flaws. First, it shows the deflationary bias typical of any system in which all the burden of adjustment falls on deficit countries (the anti‐Keynesian bias). Second, it is inherently unstable due to two distinct features: the use of a national currency as the major reserve asset (the Triffin dilemma) and the high demand for “self‐protection” that developing countries face (the inequity‐instability link). The latter is related, in turn, to the mix of highly pro‐cyclical capital flows and the absence of adequate supply of “collective insurance” to manage balance of payments crises, which generate a high demand for foreign exchange reserves by developing countries. This implies, third, that the system is inequitable (the inequity bias), and that such inequities have grown as developing countries have accumulated large quantities of foreign exchange reserves. On the basis of this, it argues for a system based on the counter‐cyclical issues of Special Drawing Rights (SDRs) that finance IMF facilities, and some possible “development links” in SDR allocations.

Keywords:   global monetary system, global reserve system, special drawing rights, self‐insurance, self‐protection

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