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TWN Global Economy Series no. 29

FRUITS OF THE CRISIS: LEVERAGING THE ECONOMIC CRISIS TO SECURE DEVELOPMENT RESOURCES AND RESERVE REFORM

By SOREN AMBROSE AND BHUMIKA MUCHHALA

Publisher: TWN (ISBN: 978-967-5412-43-1)

Year: 2010   No. of pages: 40

ABOUT THE BOOK

The allocation of Special Drawing Rights (SDRs) to member states of the International Monetary Fund (IMF) during the economic crisis in 2009 has highlighted the unique financing potential of this international reserve asset issued by the IMF. In this paper, ways to effectively utilize the SDR as a source of liquidity and development funding for developing countries are explored.

The SDR is also a key element in many of the proposals for reforming the global reserve system advanced in the wake of the crisis. It is seen as a possible vehicle for the creation of an international reserve currency that would remove the distortions arising from the present dependence on the US dollar. This paper looks at the discussion on SDRs and reserve reform generated by the crisis, and the opportunities it presents to establish a more efficient and development-friendly reserve regime.

ABOUT THE AUTHORS

SOREN AMBROSE is Development Finance Coordinator at ActionAid.

BHUMIKA MUCHHALA is a researcher with the Third World Network.

Contents

EXECUTIVE SUMMARY

                                                                                                        

1      INTRODUCTION                                                                  

2      ALLOCATING SPECIAL DRAWING RIGHTS TO FINANCE DEVELOPMENT  

        How do SDRs work?                                                                

        New special allocations of SDRs                                                  

        Reversible, or temporary, SDRs                                                   

        Proposals for SDR transfers                                                        

3      TOWARDS REFORM OF THE GLOBAL RESERVE SYSTEM       

        Why a new system?: The risks of relying on the US dollar           

        The growth of reserves in developing countries – and the cost      

        Fixing the global reserve system ... and the IMF too                    

4      RECOMMENDATIONS                                                       

References

                                                                                                                       

Annex: Language on Global Reserve System and Special Drawing Rights in Key Documents                                                

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