1. What is wrong with the International Financial Architecture and some elements for its reform Alfredo Calcagno UNCTAD 3 October 2011

2. 2 The International Financial System does not comply with the goals set in Bretton Woods: Stable exchange rates at sustainable levels. Capital controls. Timely financing in order to smooth adjustments and limit their costs. Avoiding lasting imbalances. In addition, Legitimacy eroded by unfair distribution of voting rights « Triffin Paradox »

3. 3 Exchange rates, January 2006 – Sep. 2011 (domestic currency per dollar, January 2006= 100)

4. 4 Exchange rates, January 2006-Sep. 2011 (domestic currency per dollar, January 2006= 100)

5. 5

6. IMF-sponsored programmes systematically underestimate their negative impact on GDP growth and fiscal balances

7. 7 Total deficits and surpluses in current accounts, 1990-2011 (% of GDP)

8. 8 Current account imbalances widened before the crisis, contracted and are widening again (billion $)

9. 9 Possible responses: 1) At the national level Select an exchange rate regime that would reduce volatility and real misalignments (managed floating vs. « corner solutions »). Capital management Reserve accumulation (self-insurance and limiting appreciation). Pros and cons: Worked quite well in 2008 Costs of monetary sterilisation Works better for avoiding appreciation than depreciation

10. 10 International reserves, 2000-2010

11. 11 Possible responses: 2) At the regional level Use of national currencies for international transactions Clearing systems Credit among Central Banks Regional exchange rate system Regional development banks « Modularity » of cooperative measures

12. 12 Different types of financial integration Multilateral payments mechanism Liquidity financing Multilateral mechanisms for financing and supervision Finance for defending exchange-rates and policy coordination Single currency and regional Central Bank Clearing house Yes Reciprocal credit agreements (swaps) Desirable Yes Supervision mechanism desirable Regional reserve funds Desirable Yes Yes Exchange- rate system Desirable Yes Yes Yes Monetary union Yes Yes Yes Yes Yes

13. 13 Possible responses: 3) At the global level Debate within the G 20: Cooperation or « beggar-thy-neighbor » Still a recessive bias: fiscal adjustment, confidence game, structural reforms Debate on capital flows, liquidity, reserves, exchange rates Market-oriented vs. macro prudential policies More radical reforms? Multilateral agreements on exchange rates From regional to global A true international currency