The political economy of global reserve assets

• Author: Domenico Lombardi,Harold James
• Published date: 01 December 2017
• Date: 01 December 2017
• DOI: http://doi.org/10.1111/infi.12115

DOI: 10.1111/infi.12115

ORIGINAL MANUSCRIPT

The political economy of global reserve assets

Harold James

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Domenico Lombardi

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1

Woodrow Wilson School of Public and

International Affairs, Princeton

University, Princeton, New Jersey, USA

2

The Oxford Institute for Economic

Policy, Oxford, UK

Correspondence

Domenico Lombardi, The Oxford

Institute for Economic Policy, One New

Road, Oxford OX1 1NF, UK.

Email: dl@domenicolombardi.org

Abstract

This article focuseson the political economy that shaped the

SpecialDrawing Right (SDR) by examining the threedrivers

of reform that influenced the creation of the SDR and

resulted in changes in the international monetary system

(IMS) and the InternationalMonetary Fund (IMF). The three

factors examined are, first, informal intergovernmental

forums working outside theframework of the IMF; second,

the eclipse of the IMF as the central institution of the IMS;

and finally, the lack of reference to the private sector in the

discussions,even though capital movementswere the central

cause of strains in the IMS. The article concludes that the

resulting limitations of the SDR solution—an institutional

change brought aboutby the compromise between parties to

the discussions—meantthat major imperfections in the IMS

remained unresolved.

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INTRODUCTION

The introductionof Special DrawingRights (SDRs) in the First Amendmentof the Articles of Agreement

in 1969 representedone of the few reforms of the internationalmonetary system (IMS) since the Bretton

Woods Conference in 1944. SDRs were introduced to back the Bretton Woods fixed-exchange-rate

system, bothas a means to increase the limited internationalsupply of ‘outside reserve assets’(gold)and

as a replacement for existingreserve currencies (primarily the U.S. dollar),both of which were believed

insufficient to fund ongoing world trade expansion and financial development (Eichengreen, 2006).

Underlying the debate was the assumption that any dependence on a single national currency in the

internationalsystem brought risk, instability, and illegitimate gainsfor the hegemonic country. Since the

1970s, there have been constant calls to reform the IMS. The Second Amendment of the International

Monetary Fund's(IMF) Articles of Agreement in 1978 isoften described as creating a ‘non-system’,and

recent discussions about reforming the IMS have largely run into the sand (Williamson, 1977).

International Finance. 2017;20:243–255. wileyonlinelibrary.com/journal/infi © 2017 John Wiley & Sons Ltd

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