The IMFs bid to create a global pool of currency
reserves which would take it a step closer to becoming a
global central bank came under attack yesterday from
The plan is a move in the right direction, but
wont solve the problem of global financial
imbalances, former World Bank chief economist Joseph Stiglitz
told Emerging Markets.
Guillermo Ortiz, Mexican central bank governor and
chairman of the Bank for International Settlements board,
suggested that groups of countries might prefer to create
regional pools of reserves instead.
Brazilian central bank Governor Henrique Meirelles
said the Fund could have a role in providing countries with
self-insurance, but that the bureaucratic and political hurdles
of access in the event of a crisis could derail the
The moment when you have to use it, and in which
quantity, you will have to discuss with other countries
and that would be difficult, he said.
These comments came in the wake of IMF managing director
Dominique Strauss-Kahns proposal for the Fund to
supervise a global pool of reserves, which he said would
avoid countries including China having to build up such
The reserves built up by China and other nations act as
self insurance against abrupt reversals of private
capital from emerging markets during a crisis. The Funds
hope is that a well-capitalized IMF could be a suitable
Strauss-Kahn and other officials are seeking to persuade the
major reserve-holders to abandon self insurance and
make use instead of the IMFs new Flexible Credit Line
which provides them with conditionality-free lines of credit
that could substitute for reserves.
But Stiglitz warned in an interview in Istanbul yesterday
that for Strauss-Kahns proposal to work, the Fund would
have to be seen as a credible form of insurance by offering
automatic access on a permanent basis to funds.
The Fund would have to throw conditionalities out of the
window, to give member states confidence that foreign exchange
would be available. If you are a developing country
today, maybe the IMF approves of my policies now? But will they
approve of [disbursement of] my reserves in five
The USs power of veto in the Fund would present
obstacles. The US might have a new president who is
more popular, but with the US having veto
power at the Fund countries will not entrust their
precious foreign exchange coffers to the Washington-based
institution, Stiglitz warned.
The chairman of the China Banking Regulatory Commission, Liu
Mingkang, told Emerging Markets last night that
Chinas finance ministry and the Peoples Bank of
China are having some good conversations with the
IMF at present on the reserves issue. But he refused to
be drawn on what the outcome might be.
Ortiz of Mexico which has a $47 billion flexible
credit line with the IMF earlier this year told
Emerging Markets yesterday: We should think
about this type of contingent facilities to provide countries
with contingent buffers at a relatively low cost.
You could extend that concept to reserve pooling. ..
so the membership could feel protected in case of unexpected
shocks at a reasonable cost. That way you are playing an
increasing role of a lender of last resort.
The G30 grouping yesterday called for an extension of the
IMFs flexible credit lines to boost liquidity but stopped
short of calling for a revamp of the lender into a de facto
global central bank.
Jose Viñals, director of the IMFs monetary and
capital markets department, asked whether a bid by Asian
nations to create an Asian Monetary Fund to pool the
regions reserves would be a competitor, said: In a
global world you need global insurance and having just regional
insurance would be ineffective relative to global