Out of the Box Thoughts about the International Financial Architecture

IMF Working Papers, May 1, 2009

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The Global Credit Crisis of 2008-09 has underscored the urgency of reforming the international financial architecture.
The paper contemplates more ambitious reforms that might be implemented over the next ten years, beyond short-term reforms already underway.

Routinize the expansion of IMF quotas.
Routinize the conduct of exchange rate surveillance.
Contemplate an expanded role for the SDR in international transactions, which would require an entity—someone like the IMF—to act as market maker.
Reimpose Glass-Steagall-like restrictions on commercial and investment banking, noting this would have to be coordinated internationally to be feasible.
Require banks to purchase capital insurance, raising the question of who would be on the other side of the market; the IMF is likely to have a role.
Create a new agency or institution to deal with cross-border bank insolvencies; such an entity will require staff support, which might plausibly come from the Fund.
Create a World Financial Organization (WFO) with the power to sanction members whose national regulatory policies are not up to international standards; a WFO will similarly need staff support, of which the IMF would be one possible source.

All proposed roles and institutions presuppose meaningful IMF governance reform so that the institution has the legitimacy and efficiency to assume additional responsibilities.
The paper concludes with some conventional and unconventional proposals for IMF governance reform.

Subject: Banking, Currencies, Financial regulation and supervision, Insurance, Systemic risk
Keywords: bank, central bank, credit crisis, financial market, IMF governance, IMF surveillance, WP