World Monetary Reform: Some Needed Initiatives
The world monetary system, as it is to-day is a mere patchwork of steps taken from time to time as situations arose since early 70's. That is why it is constantly under the threat of breaking down whenever an unusual situation arises.
Any major reform of the world monetary system must, I believe, attend first and foremost to the question of generation of international reserves multilaterally so that the system does not have to depend on the actions of individual governments in this regard.
Attempts at multilateralisation of liquidity generation, however limited, have taken the form of (a) enhancement in the quotas of the IMF members and (b) allocation of SDRs. To use Fund quotas as the basis of liquidity generation was not only open to several objections in theory but was also, as events have demonstrated over the years, a route that got tied down to vagaries of the national budgetary policies of the member countries, especially those with a major voice in the deliberations and decisions of the Fund. The decision to start allocating SDRs was, in a sense, meant to break out of the stranglehold of the quotas. But even there, the allocation was tied down to quotas rather than any objective criterion reflecting the need for international liquidity.
In what follows, I propose to deal, in some length, with the questions relating to IMF quotas and SDR allocations and then deal with the question of conferring on the IMF less restricted powers of borrowing to meet the genuine needs of world trade and finance without the system having to depend unduly on any one, two or three countries, however powerful they be. This is not an easy question, for although the countries now-appropriating the gains of reserve creation are also the ones with dominant say in the IMF's decision making, they will not readily foreswear their gains, not even in favour of the IMF, a body they themselves dominate. All the same, it is necessary that we in the developing countries are clear on what is involved.
I. Quotas : Should they expand?
IMF quotas have not remained unchanged. They added up to only $9 billion at the start, at present they add up to a little over $100 billion.
*Ceotre for Development Studies, Trivandrnm.