IMF Launches Debate on Future of International Monetary System

Major structural shifts are posing challenges to the global economy

Study to examine adequacy of the global safety net, how to make capital flows safer

IMF to work with others to identify—and correct—system’s shortcomings

The international monetary system is the framework that facilitates the exchange of goods, services, and capital among countries and sustains sound economic growth. To be effective, this framework must balance the needs of individual economies and the system as a whole—and do this over time, as economic and financial relationships change.

In an interview, Siddharth Tiwari, Director of the IMF’s Policy, Strategy, and Review Department, discusses the new study, the main challenges facing the international monetary system today, and how he sees the IMF’s role going forward.

IMF Survey : Why has the IMF decided to undertake this work now?

Tiwari: The IMF is at the center of the international monetary system—many people see the Fund as the system’s guardian. The last regular review was done in 2011, and a lot has happened at the IMF—and in the world—in the intervening years. At the Fund, financial sector surveillance has been strengthened, integrated surveillance decision was introduced, spillover analysis was broadened along with other work on interconnectedness, and we’ve overhauled our lending toolkit and sharpened our focus on risks and vulnerabilities.

The IMF’s firepower has also increased, to about $1 trillion. Quotas were increased, the New Arrangements to Borrow were brought on stream, and bilateral borrowings were undertaken. So it is time to review the system again.

IMF Survey : What is your diagnosis of the international monetary system today? Is it working?

Tiwari: A series of structural shifts is taking place in the global economy, and the confluence of these shifts is raising tensions and risk. First, although current account imbalances have shrunk in the post-crisis period, this phenomenon mainly reflects the compression of demand in advanced economies. So the problem of current account imbalances is still with us.

Second, the central role of one or two major reserve currencies means that developments in one economy can have significant impact on others, constraining domestic policy choices.

Third, as economies become more interconnected, episodes of capital flow volatility are becoming a permanent part of the landscape.

Fourth, while a lot of work has been done on the financial sector side—especially...