 Merci d'être ici aujourd'hui et bienvenue à cette 14e lecture annuelle de la UNU, déformée en cours de la monéterie internationale et de l'architecture financière. Je suis Jean-Marc Coaco, ici à l'U.N. de l'Université de la Nations. Comme vous le savez, l'Union de l'Université de la Nations est un grand merci au UN et à l'Université de l'Université. C'est en fait l'armée économique de l'Union de l'Université. Nous sommes au capital du Japon de Tokyo et nous avons 14 étudiants et institutions de retraite locatées autour du monde. En Asie, nous sommes présents en Japon, bien sûr, où nous sommes au capital, mais aussi en Chine et en Malais. En Afrique, nous utilisons le Akra, le Ghana, comme un hub pour les activités en Afrique et en Ouest. En Europe, nous avons des centres en Finlande, la Névelle, le Gérémonie, le Belgique et l'Isle. Et en Amérique, nous sommes présents en Canada, l'Union de l'Université et en Venezuela. Le thème de notre travail est la sustainability. Nous avons une spécialisation sur la sécurité internationale, le développement international et l'environnement international. Tout le travail que nous faisons est policier orienté et nous nous contactons avec des collègues de l'Université de l'Université, mais aussi les secteurs publics et privés à l'union régionale et l'union internationale et aussi des collègues de l'Université de l'Université. Pour aujourd'hui, nous sommes très heureux d'être venus ici avec nous professeur José Antonio Ocampo pour cette lecture de l'Union de l'Université. Professeur Ocampo est professeur dans la practice professionnelle de l'Université de l'Université de l'Université de l'Université. Et bien sûr, le chef du Régional de l'Union et des Secretaires Généraux de l'Economie et de l'Union de l'Université. Et le Dr Finthop, notre directeur de l'Union des États-Unis, qui est basé en Finlande et l'Est dans l'Elsin Key, nous introduirons le Dr Ocampo. Je ne veux pas rester très longtemps, je vais être très bref. et je vais lui donner la parole à Prof. Fintar. Merci. Merci beaucoup, Jean-Marc. Excellences, les femmes et les gentlemen, mes collègues, je devrais commencer par dire, s'il vous plaît, mais nous allons maintenant aller au travail très sérieux. C'est un privilège absolu et une grande honne pour moi d'être ici aujourd'hui et d'introduire à vous Prof. José Antonio Ocampo. Prof. Ocampo donnera la lecture du 14e anniversaire qui a été l'une des principales événements du calendrier anniversaire. C'est vraiment un de nos efforts pour essayer de mettre en place les problèmes de majorité sur l'agenda de développement global et qui est plus approprié pour faire que Prof. Ocampo. Jean-Marc m'a mentionné Prof. Ocampo est professeur de la Université de Colombie, mais il a eu un nombre de postes très seniors avant son appartement à Colombie. Il était le secretariat de l'Université des Nations de l'Economie et des Affaires Sociales. Il était le secretariat de l'Economie, et le caribien, Écloc. Il était le ministère de Finance et de la Crédits public, le chairment de la Board de la Banque de la République. Il était le directeur de la planète nationale et le ministère de la Planète. Il était le ministère d'Acriculture et de Rue de développement et de plein de autres seniores positions. En effet, une carrière distincte sur le côté académique, sur le côté de la politique dans l'UN. En addition to that, José Antonio Campo is a great colleague. He is the author of numerous books and articles on macroeconomic policy and theory, economic development, international trade and economic history, and his latest books include Growth and Policy in Developing Countries, a Structuralist Approach, Will Lance Taylor and Kudri Narada and Time for a Visible Hand. Lessons from the 2008 World Financial Crisis was Stephanie Griffith Jones and Joe Stieglitz. I think these titles suggest that Ocampo is at the front line of the core debates about the international financial and monetary architecture. Would you kindly join me in welcoming Professor Ocampo today? Let me thank Fin for this kind invitation to deliver this 14th annual wider lecture. Let me say, let me start by saying how important the work of this institute of the United Nations University wider. The very important role that it has played in development and in the work of the United Nations. I can say that both in my academic career, my early life and my current life as well as in the intermediate period in which I was a UN official I had the opportunity to work very closely with wider. The early years of wider made it a very respectable meeting place for academics working on development issues and it has remained like that. I think the record of publications excellent meetings and support to the United Nations debates that is in the record of why they make it really a unique institution within the United Nations family. I like to underscore in particular two things that I find very interesting about the history of wider. The first is the pluralism that has characterized the work of wider. You can see there different approaches to development debates through the years just by looking at the list of people who have preceded me in this podium. You can see the plurality of views that can be expressed through this institution very much in the spirit of the United Nations. And second and equally important the capacity of wider to convene not only researches from industrial countries on development issues mais even more so researches from the developing countries. I had the opportunity to meet many people from the start of wider 25 years ago in the wider meetings in which I had the opportunity to meet many Latin Americans, Africans, Asians with whom I have the opportunity to interact through the years. I also really honor and privilege and I must add proud to be able to deliver this lecture today after the so many brilliant economies who have preceded me in this podium. So thank you Fintar for this invitation today. I'm going to talk today about the monetary and financial architecture and I must say in particular about the monetary part as you will see the financial part has been subject to more debate. This is actually quite a very interesting time. It is quite clear that this crisis has not finished just you read the papers today you will see that there was a run on government bonds worldwide yesterday which is one of the many reflections as well as the events in Europe and in many other parts that we are still living through the effects of this crisis that started let's say in mid 2007. So we have more than 3 years going on and as I will try to show as the crisis has proceeded more and more issues have been put in the agenda. So let me start let me divide the presentation in 3 parts I'll start with the context then I will talk about the substantive issues of the reform agenda and finally about the governance issues which are equally important for this purpose. So on the context let me of course start by underscoring the fundamental fact that this crisis has revealed again that we have dysfunctional monetary and financial governance that the rules on which financial globalization is taking place are inadequate for the magnitude of the interaction among countries that takes place in our era. But this is not the first time we are discussing this Actually after the Asian crisis but you can say even before after the Latin American debt crisis or even before after the collapse of the Bretton Woods system in 1971 the issues of the reform of the international monetary and financial system have been on the agenda and the fact is that it is a collection. Actually my own contact with this issue that I am going to talk today came precisely in my early days in the United Nations when the group of UN institutions got together to propose actually an agenda for international monetary and financial reform that was put out actually in January of 1999 and I was co-ordinated that job So at that time many of the issues that I am going to talk today were clearly in the agenda and the UN was one of the institutions that pioneered many issues that only with time have been recognized as central to the reform effort So I must say that I think the United Nations and I'll come back to this at the end must have a place in this dialogue and a place that sometimes has been recognized for instance most notably in the Monterrey Conference of Financial Development but or last year in the summit that took place in June on the global crisis by which sometimes it's not clear recognized by all actors So I think this is a very important issue that I want to discuss So the Asian crisis in particular generated a set of many very important initiatives but many like I said, most were not materialized into action So this is an opportunity to describe the fact that the industrial countries have been at the center of the crisis I think it's a great opportunity to rethink seriously this whole architecture Now when you think of this issue there are two clear overriding objectives The first one is the objective of macroeconomic stability In the world in which we live which is a world it's an international system that is a system which is sterilized on nation states on which nation states are the main actor in economic policy The main task is to give some level of coherence to policies adopted at the national level So that's the main task of macroeconomic stability and of course the capacity to prevent crisis and to manage crisis when they occur that threaten that monetary stability And the second is financial stability in a sense you can think of as a subset of the macro issue but this relates in particular to the financial system Now in the history of this that I will present very briefly it is quite clear that in the design of the global institutions after the second world war it was monetary stability that prevailed and where there was a more copious architecture that was put in place in particular through the creation of the international monetary fund financial stability in contrast was received very little attention in fact no attention and this was of course no accident because the international financial system had essentially disappeared during the crisis of the 1930s so the great depression actually eliminated financial globalization and it would only take it would take 3 or 4 decades for an international financial system to come back into existence so it was only in the 1970s that you can think that the issue of how to regulate or how to manage financial globalization was first put in the agenda with a significant lack essentially because the main development of this was called the euro dollar market in Europe of course and later the euro currencies market had only really taken off in the 1960s so it was only in the 1970s that this issue was recognized now the two of course are closely linked and we know that because most of the macroeconomic instability is associated to crisis in the financial system as we know the we are living through one such occurrence but there have been many many more in the past even before of course the creation of the institutions that have been designed to do that what is interesting about the way the crisis has evolved is that the agenda has increasingly broaden when you think of the initial crisis and particularly the financial meltdown that took place in the world after the collapse of Lehman Brothers in September of 2008 that led to these actions under the leadership of the group of 20 to re-regulate finance so there has been a lot of effort to do that but also to revive an instrument of international cooperation that was undergoing deep crisis which was an international monetary fund including not only the creation of credit lines many credit lines as we will see but also the revival of this very peculiar institution on which I will focus a lot of attention later on which is this special drawing rights the special drawing rights is a funny name I will say for for the only international money that we have is actually a money that can only be used let's say by central banks and in the dealings of central banks with the IMF but it's not used broadly it's not used in private markets but it's an international money created by the IMF the same way in a sense that central banks create money at the national level and I think that as you will see one of my main focus is how to make that international money more useful for the international monetary system and I think that's a great part of the reform agenda that has to be analyzed now in the most recent second phase of more recent origin which is the one that took place a few months ago there was this talk about the currency wars the term that was used by the Brazilian finance minister to refer to this volatility of currencies the flood of money towards emerging markets that is taking place and the exchange rate problems that they have been creating in developing countries to excessive appreciation of the currencies of developing countries now that brought into the light the need to do more things particularly the need to correct current accounting balances there is a balance of payments of countries which was the subject of the debate in the last meetings of the IMF and the last meeting of the group 20 in Seoul but also brought into light the issue that maybe we also need to regulate more the capital flows across countries because it's a very peculiar issue that the G20 took the the regulation of finance in a very serious manner but the regulation of cross border finance let's say the take place of cross borders is an issue that has not been in the agenda of the group of 20 so I think the currency wars brought the fact that you have a problem with the exchange rates and you have a problem with capital flows across countries now you have in addition the crisis of the European periphery and the many debates that have taken place around that crisis which have brought into the agenda at least two other issues the first is the issue of the importance of regional institutions because the European finally reacted with creating a stronger regional institution to help manage the financial system I'll come back to this issue and also I'm very importantly brought back an issue that had been in the agenda repeatedly but which is subject to a repeated amnesia also which is the issue of how to manage over indebtedness of countries how to restructure, reschedule depths of countries when they have gone into crisis so this issue which has been in the center of the European debates also was discussed in the IMF in the 2001-2003 under the proposals made by the IMF at the time but it had been in the agenda before after the Mexican crisis of 1994 so it's a repeated issue that has come into the agenda in a sense the fact that the world does not have an international bankruptcy court and the management of bankruptcies is part of market economies so you need institutional mechanisms to analyze and to manage bankruptcies but that doesn't exist at the international level which is the problem that is again put in the agenda during the crisis and then finally and very important is the issue of global monetary reform as such this issue was put in the agenda in March of last year by the Chinese central bank governor and also by this commission convened by the President of the General Assembly of the United Nations on international monetary and financial issues that was headed by Professor Stiglitz of which I was a member and which put in the agenda the issue that global monetary reform that is the role of international money versus national monies it has to be also a very important issue to discuss and it's very interesting that this is the topic that the French presidency of the group of 20 has put at the center of his agenda for next year so there are going to be a series of meetings to discuss exactly international monetary reform now if you think of the history it is very interesting because then you can see the elements of what came into being and what is being what are the main elements of the international monetary architecture that we have the debate started of course during the second world war and particularly among the United States and the United Kingdom that finally led to the creation of the international monetary fund and the World Bank at Bretton Woods now the proposal that was put in the agenda by Keynes at the time in the name of the UK was that the essential problem of the international monetary system is the fact that it places the whole burden of adjustment during crisis on deficit countries so deficit countries have to adjust surplus countries do not have to adjust and that asymmetry is an essential problem in the international monetary system I mean you can see it today I mean this is why Greece and Ireland have to adjust in Europe but Germany the surplus country does not ok so that is exactly the problem that comes back repeatedly during crisis and so Mr Keynes in the name of the UK proposed the creation of what he called an international clearing union which was essentially a sort of central bank of the world to simplify that in which surplus countries will be forced to finance the deficits of deficit countries so as to allow a smooth adjustment and to put part of the burden on surplus countries now Mr Harry Dexter why the US negotiator of course said not of that idea for one simple reason because it was clear that after the second world war with the destruction of Europe the only surplus major surplus country in the world was going to be the United States so that meant that the United States would essentially finance in an unlimited manner the European deficit so that discussion between the two positions is what led to the creation of the international monetary fund and let me see what are the the essential characteristics of that arrangement I will summarize in five features the first is that there was a global monetary system global reserve system base on a dual monetary standard the dollar and the gold with the dollar dollar ties to gold at the fixed part the second was a system of fixed exchange rates that could however be adjusted when there was this equilibrium in the payments of countries it's interesting that it was fixed exchange rates not floating exchange rates that we had later on for one simple reason because the 1930s had been a period of for floating exchange rates and there was a sense that there had been a lot of competitive devaluations that countries have used monies to gain a comparative advantage in international trade and for that reason floating of flexible exchange rates were seen actually as a bad idea to design an international monetary system and that's why the system was based on fixed exchange rates but that could be adjusted so it would not be like in the gold standard that had prevailed up to the first world war in which countries could not change their parties among each other so it was a partially flexible system but essentially based on fixed exchange rates the third element of that was that any country could control in any way the capital movements so that there was no free capital movement and for what reason basically because that will increase the capacity of countries to manage their monetary policy so that was the third element of the system, capital controls in any way any country wanted and actually outside the United States the major part of the world economy western Europe used capital controls extensively up to 1990 so it was a long period in which they actually used capital controls in an extensive way even the United States used capital controls at several periods in history that are now a bit forgotten but the President Nixon established a very interesting interesting equalization tax which is not unlike what the Brazilians are doing today when they put the tax of capital inflows so it's actually a very similar system also used by the United States the fourth element is that during crisis since countries in crisis will be unlikely to have access to capital markets then there will be some limited financing by the IMF so that emergency financing was part of the system and finally there was a mechanism for macroeconomic policy coordination which was very loose it included this monitoring of countries policy to the IMF but not real macroeconomic policy coordination now this system collapsed in 1971 when the United States decided to abandon the parity with gold that had been established at Bretton Woods and then we had a different arrangement that arose which has many many different features from the system that was in place before and this is essentially the system that we have today so the first one is that the center of the system will be a totally incompatible currency the United States dollar now with no conversion for gold as in the old system so an incompatible currency was at the center of the system the second is that countries were allowed to use about any exchange system they wanted so the fixed exchange system was abandoned altogether actually among the major currencies the system that has prevailed is a system of flexible exchange rates so in a sense back to the 30s rather than to Bretton Woods ok this is of course the basic problem because as in the 1930s and this is why the decisions in the IMF about how to manage exchange rates have always pointed out that countries have to avoid manipulating their exchange rate to increase competitiveness and this is a subject of a lot of debate, this is the center of the debate on the currency wars about whether countries are actually manipulating their exchange rates on the the current system that is the same debate of the 1930s that eventually led to the abandonment of flexible exchange rates the third is that although it was never decided actually when the US and the IMF tried to publish free capital movements in the Hong Kong meetings of the IMF in 1997 they were defeated so they essentially in principle can still manage their capital flows control them as much as they want in practice by the pressure of markets and even by the pressure of conditionality in the IMF programs and even the World Bank programs countries have ended up with a significant level of capital account liberalization the fourth is that the idea of emergency financing continue to be in place but the size of the IMF became increasingly small relatively to the demands generated precisely by the mobility of capital we have a system in which there are credit lines but they were seen as increasingly sufficient for a world in which there is much more capital movement than before this is the issue that came with very strong force during the Asian crisis and came again during this recent crisis leading to a significant reform of the credit lines of the IMF the fifth element of this arrangement is some limited macroeconomic policy coordination but that take place outside the IMF through a mechanism that I call elite multilateralism so the leading countries decide to organize themselves outside formal frameworks first in the G7 now in the G20 but that take place outside the formal institutes because they are the leading countries I call them elite multilateralism so elite multilateralism has actually been the way macroeconomic coordination has taken place and you can think of several phases in history it took place during the early post-war period when we have the problem that was then called the dollar shortage the fact that dollars were scarce given the the need of Europe to reconstruct itself the fact that Japan was still developing countries etc etc now that was solved in a bilateral way through Marshall Plan outside the IMF and outside the World Bank which had actually been created largely to finance the reconstruction of Europe and that's why it's called the bank for reconstruction and development the reconstruction part referring to Europe in the case of the World Bank the second it was the collapse of the Bretton Wood system of this dull color party in 1971 that itself again was managed outside the IMF through what was called the Smithsonian Agreement which in the case it was signed in Washington among the group of 10 which was a group of 7 plus 3 smaller European countries very important for financial issues then we had the crisis of the 1980s generated by the excessive appreciation of the dollar in the first part of the 80s that led to these 2 accords the plus accords signed in New York and the Louvre accords signed of course in Louvre to manage the orderly depreciation of the dollar and very importantly an appreciation of the yen which is why Japan was in a sense forced to appreciate this currency which is a very important present of why China doesn't want to follow that step because many analysts including me considered that that was the end of the Japanese boom that accords and that's why China doesn't in a sense want to go that way in its current dealings of its currency problems and finally Europe itself manage its problems outside the IMF of course building at the end its own institutions so in the post world period there was this European excuse me the creation of the European payments union and then after the collapse of the fixed parties in 1971 there was the creation of the European Monetary System to manage the problems of fluctuations of Europe it never accepted among its members a flexible exchange rate system so they eventually said they had limitations on flexibility that eventually led to the creation of a unique currency among most of the countries and this is very important because this could be in a sense one way in which the exchange rate system of the world can't be redesigned in something similar to what was calling the early 1970s the snake sort of flexible but flexibility within some constraints that was arranged about European currencies ok let me skip this global financial stability to go into the second part of the lecture which is what is that we think should be the design of the system and I call this comprehensive yet evolutionary reform because what I think what is characteristic of the system that we're living through is that the seeds of reform are coming from inside so there are many things that have been done or are being done on which we could be built a very different system and that's what in a sense my proposals are here and that's why I think they are realistic because they come from things that countries are already doing I think it's interesting about these proposals so for that you need in a sense relating to the functions of the international monetary system you need five essential elements which I want to focus in a gradually in my presentation the first you need a system to make national policies consistent among each other ok so that they contribute to global macroeconomic stability and particularly avoid this problem of competition through exchange rates that is they avoid the currency wars ok second you need an international monetary system that contributes to world stability and that is seen as fair by all the parties third you need regulation of capital flows across countries of some sort of the global regulatory reform fourth you need to improve the emergency financing during crisis and finally you need an international that work out mechanism that is a mechanism to manage crisis of some countries so let me see what this means in practice in the first area that is the area of macroeconomic policy my in a sense my simple proposal is bring the issue back to the IMF not the G20 so in a sense the G20 should give back this function which is a fundamental function of the IMF in a sense replace elite multilateralism by some form of formal multilateralism in the IMF that may have some deficiency that we have to improve on but which is at the end a system in which all countries have a voice you know through the constituency on which the board of the IMF is formed there have been interesting presidents of this and actually the most important president was precisely the creation of this international money the special drawing rights in the 1960s which is interesting because it started as initiative of Europe outside the IMF and the United States insisted that it be discussed within the IMF and it finally was approved within the IMF and why because actually the US saw that developing countries were an interesting partner in the debate vis-à-vis Europe and that's why the special drawing rights was the major monetary decision of the world that has taken place within the IMF itself there was also this attempt in 2006 to manage multilateral surveillance through the IMF which was a failure and now in the under the G20 you have this mechanism by the IMF is assist what is all called consultative mutual assessment process of the G20 so the which is a very peculiar arrangement in the SOAR because is a formal multilateral institution at the service of elite multilateralism which is not quite the best principle of international cooperation than we can think of so that's why I think the best way to do this is to just give the IMF the function of multilateral consultations in macroeconomic policy and then of course there was the broader revival of the IMF with the return of industrial country borrowing which had not borrowed from the IMF since the early 1970s so this was a very important event and very interestingly the more recent decisions which was the decision to double to make the issuance of a special drawing rights which is the largest in history 283 billion dollars last year and the doubling of quotas which was agreed just prior to the G20 so that's my proposal let's continue with the way it has been in a sense built by the G20 but within the IMF which is the best forum for that purpose now the global reserve system which is what is the international money and the relation between the international money and the national monies or regional monies in the case of the euro is of course the center the second problem of reform and that requires you know three sort of reforms to manage three problems that the system has the first is the problem that was highlighted by Keynes in the debates during the second world war that's why I call it the anti Keynesian bias the fact that the burden of adjustment is on deficit countries in other words that surplus countries don't have most to adjust a significant role so you have to give some role to the surplus countries in the adjustment process also the second is what has come to be called the Triffin Dilemma now the Triffin Dilemma is in honor of a famous Belgian economist Robert Triffin or Robert Traffin that made the most insightful analysis of the how the dollar gold system work back in his writings in 1959 and the essential problem highlighted is that when you use a national currency that is the US dollar as the international currency you have a problem why do you have a problem because in order to give international liquidity that is to give dollars to the world the US has to incur a deficit but the fact that the US incurs a deficit at the end may defeat the expectations of stability of the dollar so in a sense the system by which you provide international liquidity is a system that makes the central currency unstable ok that's essentially the point that was made by Robert Triffin and that's why he proposed that the system had to evolve into an international money which in a sense was the debate of the 1960s and that led to the creation to the special growing rise so that's the second problem of the system I will see some features shortly and the third problem is what I call the growing inequities of the system now where do the growing inequities arise they arise essentially because developing countries are subject to much more volatility in the international monetary system than the countries at the center historically this is still true today because despite the fact that the United States has been at the center of the crisis when there is a significant flight to quality as it is currently in this space money comes to the US so the US has in a sense no financing problem so far and hopefully never because that will be a major collapse of the international system but the countries in the countries that have some payments problems at different stages do have a problem of instability and capital flows have been very unstable for all developing countries in recent decades how did the countries respond developing countries they responded basically by accumulated foreign exchange research by a mechanism that has come to be called self insurance so there is no good collective insurance in the world let's each one of us accumulate research to protect ourselves against crisis that system actually has worked in one sense it has worked in that it has allowed developing countries to manage these recent crisis much better than before because they had a huge amount of research to protect themselves but of course it has a problem is that that effort by itself generates payments imbalances so you have to see how to manage the individual rationality of the system for each country but the collective rationality of the system which is what we in economics call the fallacy of composition so this is a thing that is good for one person or one country but that may be bad if everyone does that at the same time I mean the best case is actually the case of consumers which is the basic fallacy of composition it's good for one consumer it may be good to save more but if all consumers save more then we have a problem of demand and we have a crisis so this is in a sense the same the same problem but at the international level if each developing country accumulates research it's good for that country but if all countries are accumulating research at the same time we have a problem because someone has to be on the other side someone has to be having a deficit to compensate for the surpluses that countries have and here some of the manifestations I mean just see these are the dollar exchange rate in red and the deficit of the united states you see that the system has been characterized by increasing deficits and a large volatility of the central currency is the US dollar and this is what has happened to reserves you see back 20 years ago developing countries and industrial countries had the same amount of reserves of international reserves about 3% of GDP of gross domestic product but you see it since the crisis in the latin-american debt crisis and particularly since the Asian crisis developing countries reacted by accumulating loss of reserves so that industrial countries except for Japan continue to have about 3% of GDP but now a typical middle income country has about 30% of reserves and a typical low income country 25% of GDP of reserves so that developing countries on a massive scale have been self-protecting themselves which is this is of course good in the sense that developing countries have been able to manage crisis better but it's bad and why it's bad essentially because it implies that the US has to run a deficit in order to be for developing countries as a group to run a surplus which is how you accumulate reserves but then this became a problem because the united states deficit became a problem so this is part of the irrationality that we have in the system now during this crisis it's interesting you see developing countries use part of the reserves but then they started to accumulate reserves again so we are now in the middle of last year in another phase of reserve accumulation which is a natural response by developing countries to a system in which now capital are flowing again in massive quantities to developing countries generating appreciation of their exchange rates which they want to avoid because they know that from the past that every time their exchange rate appreciates and they run deficits they are likely to have a crisis which is a repeated history that has to be correct that's why the system has to be resolved in a sense 2 alternatives the alternative the initial alternative is what we can call a multi currency standard that is a standard based not on one national currency but on several national currencies which aside I guess from the US dollar it could be the euro in particular it could be the yuan you know very soon and the Chinese authorities are really working for that would be used as an international currency I mean I can think of in a smaller scale other currencies now that system has several advantages is more diversified so that you know is less prone to individual currency crisis that's good but it is equally inequitable because still the developing countries with the exception of China I guess if China becomes part of that system developing countries will still have to accumulate reserves to manage their crisis and we must remember that what is a reserve when do countries invest reserves they basically buy US Treasury bonds or German Treasury bonds so it's a capital flow towards the industrial countries that's exactly what a reserve is so it's a money that is invested by developing countries in industrial countries by developing countries central banks so it's a system it's inequitable in a sense the developing countries under this system is giving cheap financing to the US and to other industrial countries that's essentially what a reserve accumulation implies I know at the world level so that's why the the other alternative that I propose is a system essentially based on a special drawing rights so it's to make the IMF more like a central bank of the world with the capacity to create money on a larger scale like it did last year when it created 283 billion dollars in international money in special drawing rights but in which that international money can itself be used by the fund to finance crisis to finance crisis ok and how do I propose this in a very simple way countries are issued a special drawing rights so any old members of the IMF are given by the IMF this international money which is owned by the central banks of the whole world and then if they don't use that money they deposit it quote-un-quote in the IMF so they see like accounts of the central banks and with those deposits the IMF will be able to lend will be able to lend to countries in difficulties so you have a self-financing mechanism which is actually what all central banks of the world do and you think of the discussions on the US monetary policy that's exactly the point how does the federal reserve create money basically it lends to the US government it buys treasury bonds or it buys other private bonds in the market so in a sense it's a mechanism of financing so the creation of money of a modern central bank is a mechanism of financing that's exactly what I'm proposing for the IMF use a special drawing rights in a sense go into an entirely IMF based on a special drawing rights and use those issuance of special drawing rights as the main financing mechanism of the IMF now in that system you will have to correct certain asymmetries and particularly this basic problem that is developing countries that need reserves not industrial countries I mean one of the basic anomalies of a special drawing rights is that you I mean last year for instance about 60% of the special drawing rights were given to industrial countries including the US who don't need it while developing countries who do demand huge amounts of research for protection are only giving 40% of the special drawing rights so I say let's think about different ways and I propose in particular two ways the first one is that you have an asymmetric issuance so essentially you give well for instance you decide which is something proposal by a colleague John Wilson that give let's say 20% of the issuance to industrial countries and 80% to developing countries and then just allocate that those proportions according to the IMF quotas in the IMF of each group of each country within this group in one way so it's an asymmetric issuance give more of the special drawing rights to the country that really demand research which are developing countries that's one proposal but the other proposal is what I call a development link which is similar to a proposal that was made by a group of eminent economists too unctured in the 1960s when the discussion of a special drawing rights was taking place with the process of special drawing rights by or deposit that money or lend that money to the World Bank and the other development banks ok so one of the possible uses of a special drawing rights is actually lending by the IMF to the World Bank to the inter-american development bank to the Asian, to the African development bank and with that that money would be recycled into developing countries through those development banks second proposal so there's two alternatives and this is actually the proposal that was adopted by the Stiglitz commission last year so the second element of the system now the third element and I would say the more difficult is the exchange rate problems so to start with let me say that we don't have a system of exchange rates that's why I say we really have a non system of exchange rates essentially any country can choose exchange rate system you can choose a floating exchange rate system but you can fix your exchange rate when it's a floating it's the US versus the euro but you can also do the fixed exchange rates Hong Kong versus the US dollar totally fixed exchange rate or you can have intermediate systems you can put bands which you allow your currency to float you can have the whole system fix exchange rate and then manage move it during crisis so any country can adopt any system which is a non system a lack of a system and I think that is what is proving to be a problem particularly because the accusation that is being manipulated by countries has come at the center of the problem with of course the significant views about whether countries are manipulating their currencies or not let's say let's talk about the problem of the Chinese Yuan to be the major problem of that time but even more important the system has two basic problems first of all is not contributing to correcting global imbalances I mean that's quite clear by the facts it's not correcting global imbalances today but equally importantly it's very dysfunctional for world trade so what you have is a lot of unstable exchange rates and the instability of exchange rate is a tax on trade I mean you can think of it it's a tax on international trade actually that's what I learned when I was student of economics reading a very famous economist Charles Kinderberger who actually referred to flexible exchange rates as a tax on international trade that's why Europe never liked flexible exchange rate among its members because they know that when you have flexible exchange rates you cannot have a stable trade and European integration was obsessed with avoiding huge fluctuations of exchange rates and that's why they intervened so heavily and invented many ways of avoiding a flotation of exchange rates so we need a basic reform of the system which can have the first one is actually what was agreed by the J-20 in Seoul which is let's talk about some indicative targets on the current account so avoid countries from running large sur-process or large deficits in trade that's one way to proceed that's part of the solution I think to this but the other is the proposal that have come repeatedly through the years to stop something like the European Monetary System so a system that allows for some flexibility but within certain constraint bounds which is the system that has been called in different ways target zones by some or reference rate by others so let's think of a system that is less flexible is still flexible but does not allow the volatility but this is a problem is shown here this is the volatility of the exchange rate between the dollar and the euro ok and you can see here that we have had the peak level of volatility ups and downs of that exchange rate compared which is only comparable to the early part of that graph which is the European Monetary Crisis of 1992 so we do have a lot of instability in the euro dollar exchange rate that is you can think of excess volatility that has to be corrected because this is non-functional, I mean this is serves no purpose really for the global system so this is the second the third proposal on exchange rate the four proposal on capital account essentially say well let's think of a system in which not only you allow a capital account but you somehow try to make those restrictions collectively coherent why is this a problem because when one country regulates capital another country does not regulate capital it's only transferring in a sense transferring the excess money of the world to the other countries without restricting capital so in a sense the intervening one place makes again rationality for that country but may not be collective rationality so the problems are in a sense displaced to other countries and that's why I think the issue of cross border finance has to come into the world agenda and give light to some rules of some sort such as many that may are actually being practiced by countries and that make some sense as the IMF itself has recognized so I propose for instance three possible to start discussion that I think are quite rational to adopt which is allow for reserve requirements on capital inflows so the system that was invented by Chile that is practiced by Colombia and many other countries which is basically when you bring some capital into the country you have to put some money in the central bank ok? the second is establish minimum stay periods so eliminate the volatility by saying that capital can come in but has to stay one year before you take it out this is actually what the private sector does all the time I mean you bring money to a fund they will tell you you take the money out too soon I'm going to cut part of your money so you have the cost for getting out so this is essentially what I'm proposing here and the third and very importantly is to eliminate certain transaction for instance do not allow consumers who don't have revenues in foreign currencies to incur in debt in foreign currencies which is a typical problem it has always generated problems in countries I mean the most recent in central and eastern Europe where many consumers actually dèves in euros or other currencies and we have been a very source of progress so that's another block of the reform effort then still another reform is how you do emergency financing this is an area which many good things have happened already and you have essentially to continue on that among the things that have been adopted by the IMF in 2009 and 2010 we have all facilities double that you have a contingency trade lines that you don't use necessarily but you can get a loan sort of an overdraft facility that you get with your own banks so you have an overdraft facility you have a capacity to loan that you can use whenever is needed in the future you have a new framework for low income countries and the elimination of certain conditionalities in IMF lending but the problem is that the system is still seen as insufficient because as in the international debate IMF borrowing still carries a stigma because the view that you go to the IMF is because you have a problem and on top of that you're going to have conditionalities of the IMF and that's why I think this problem can only be solved by a sort of automatic overdraft facility of some sort so there is at least partial adoption of the reform that was suggested by Keynes in 1944 that is created an overdraft facility that any country can use up to a limit without any conditionality of any sort that I think will eliminate in a sense the stigma because when a private firm or a consumer uses his overdraft facility is not seen as a stigma is for borrowing and finally in the reform agenda in the sustainability reform agenda we need to solve the issue of debt resolution in which again we have a non-system today a non-system that it has a well structure mechanism the Paris Club for official debts but you have nothing really for private debts ok so you have to think of a different system in which both public and private debts are dealt with and you can think of many mechanisms of this sort actually the best try was done by the IMF in 2001 2003 which is the sovereign debt restructuring mechanism that didn't work among all reasons opposition by different countries by the US also some Latin American countries Brazil and Mexico opposed it etc so it was not approved but it was a very interesting try but it's also problematic for another reason because you cannot give that the management of that mechanism to a creditor the IMF is a creditor it gives lending a lender the capacity to manage the debt restructuring because it has an interest in the result of that restructuring and that's why you have to think of different mechanism one is actually to create the debt restructuring mechanism within the United Nations I think that's one thing that could be done but the other reason you want to give it to the IMF which is a thing that I have thought through the time is that you can do it independent panels that look at the problem of each individual country and try to give rationales something that is done with WTO for trade disputes so a similar mechanism to the trade disputes of WTO when there is a problem of one country then you create a panel that will serve as a negotiating or help the negotiations between the debtors and creditors and eventually it reaches a mechanism and if it doesn't reach an agreement it will decide on what agreement will take place and that will be enforceable in all courts ok so those are the elements I'll come back to the conclusion to mention again but these are the building blocks of this reform now let me finally give a few minutes to the issue of governance structures now the governance structure we have three elements that have to be taken into account the first one and the one that has been discussed more extensively is reforming the Bretton Woods Institution to make them more representative of countries and here as we know the major problem is the overrepresentation of Europe and the underrepresentation of Asia I mean to be straight and simple and that's the problem that has to be solved the Asian economies are much more important today than when the system of quotas of the IMF of the World Bank were adopted so we have to give and the European economies in turn have the opposite problem they are much less important today than when the system was adopted and there are other problems I mean there are problems of allowing the election of the IMF managing director and the world bank should be the president of the world bank should be free to any citizen avoiding the tradition that the IMF managing director is a European and the president of the world bank is an American which in practice means that there is no election as such the president of the world bank is usually designated by the US president and the managing director of the IMF is selected by the finance ministers of Europe and the system functions is not a better democratic system if you are a citizen from Japan you have no chance of being either but not to say you are a Chinese or an Indian or a Brazilian or a Colombian so you have no chance and you have other problems like the fact that you have an 85% majority rule in the IMF which means that the US which has 18% quota is the only country that has a bit of course you can also have a bit of a collection of countries and some countries get together and bit of some decisions in the IMF but the fact that the US has that majority by itself is a problem and then there are other problems that I don't have the time to deal with now the recent reform is the most interesting reform approved the one that was decided before the Seoul meeting of the G20 which is I think the most significant reform and I think it's a major step in the right direction what does it imply well first of all it's different for quotas and for voting power basically because the IMF does have a system which was improved 2 years ago by which each individual country independent of size is given a certain number of basic votes so the voting power is based on quota and those basic votes now in quota what happened the European basically lost accepted to lose 4% of the quota which is given to developing countries essentially and particularly to China and 5 other developing countries which are Korea India I mean Republic of Korea India Brazil, Mexico and Turkey ok so those are the 6 winners of the reform ok it's interesting that part of what they win because China wins 3.4% and the other 5 countries 3.9% part of that actually comes at the cost of other developing countries 3.4% ok it's a problem many developing countries lost in this negotiation including important countries South Africa for instance is one country that loses in the negotiation voting power is actually better developing countries win 5.3% and now the small the non 6 winners let's say lose only 1.4% I'm very interested in the low income countries which actually lose in quotas 0.3% win slightly in terms of voting power because of the basic votes so it's actually you can think of more reform but this is really has been a major effort so this area is taking care of the World Bank was also reformed this year in terms of its power voting power it's a significant move both are insufficient in my view but there are significant positive moves and the fact that this energy which we are moving forward but I would say the second issue and the most basic is how we manage this problem of the elite multilateralism so how we go from an institution that is self appointed non representative of the whole world and non institutional which is the G20 into something that has a better and more institutional structure so my proposal in this area is that the world has to starting by the G20 itself has to start seriously thinking about an institutional structure that is formal and admits the objective that the G20 has done the job that the G20 has done during this crisis which has been positive so the more I think of this the more I think that this structure has to have two features first of all it has to be headed in the UN but not in the UN organization but in the UN system including the World Bank and the IMF the United Nations system a fact that they don't usually recognize but it should be recognized so you put them as part of the UN system you bring the WTO into the UN system which for funny reasons was not made part of the UN system so you have a structure a sort of institutional structure to govern economic globalization let's say in the UN system so the my proposal it will be that it will basically support be supported by five organizations which are the UN proper the United Nations organization the World Bank, the IMF, WTO and ILO to take a major specialized agency of the UN system so that's the the essence of the and the second issue that it has to be based on a system that allows the most significant countries to be on the table but on an elected basis so you don't no country has the right by itself to be on the table so you have to think of a system in which let's say the important the economic importance of countries is recognized for the membership but at the same time all countries are represented and that's why at the end I think we have to think of a constituent system such as the IMF and the World Bank function so in which let's say my country, Colombia never sits on the IMF board but it's part of the constituency headed by Brazil so Colombia like Philippines which is also part of that constituency speaks through Brazil in the IMF board so but we have a voice an indirect voice but we have a voice so we have to think of something which is of course a very different institution because it will recognize two points the fact that you have a UN system but you also have different sizes of countries that you have to recognize because it is quite clear that you have an organization in which the major powers are not sitting on the table then the decisions of that body will not be taken into account by the powerful countries I mean which is the reality which has been recognized at the end in the creation of elite multilateralism so you have to think of something that is really a replacement of elite multilateralism by true multilateralism through something organized around the United Nations system and the third element which I propose is what I call a multilayer architecture which is essentially a system in which you recognize that you don't only need wall institutions but you have a dense network of regional institutions and sub-regional institutions and maybe inter-regional institutions which is what we have today in the world for multilateral development banks because in multilateral development banks we have the World Bank but we have the African, the Asian inter-american development banks and we have several sub-regional banks in Latin America we have three we have the Indian Development Corporation the Central American Integration Bank we have the Caribbean Development Bank and then we even have inter-regional banks the most important being the Islamic Development Bank so you have a system in which you have many institutions that are supporting now my idea is let's do the same for the IMF so let's think of a system in which aside from the IMF we have regional institutions that support that are part of one system and I think the two major steps are of course the Chiang Mai Initiative of Asia ASEAN plus China Republic of Korea and Japan the Latin American Reserve Fund and very interestingly the recent European agreements on their own monetary architecture so those are the three elements so let me conclude then by saying that the reform effort has to have two basic elements what I call a comprehensive yet evolutionary reform which is made essentially of five elements which I have presented one by one you have to have an IMF center macroeconomic consultation process so you replace the G20 by the IMF at the center of the system second you have a new reserve system basically based on a special drawing rights third you rebuild an exchange rate system in the ways I suggested you have a broader use with some international rules on capital accounts regulations so you put cross border finance as part of financial regulation and fourth you create an international debt workout mechanism so those are the five building blocks let's say the reform effort and you need an inclusive architecture which in my view requires three things first continuing the reform of the Breton Woods institutions second replace elite multilateralism by UN system organization and finally multilayer architecture with active participation of regional institutions thank you very much