Conference on The Future Global Reserve System—an Asian Perspective

Background

A well-functioning global reserve system is vital to international trade and capital flows, regional integration and cooperation, and sustainable economic growth. Reserve currencies typically perform three primary functions: they are held by governments outside the issuing country as store of value, and serve as a means of payment and unit of account at an international level. A well-functioning global reserve system supplies the international liquidity needed by a growing global economy, facilitates balance-of-payments adjustments, and provides an international framework for sound national economic policies.

There are arguments both for and against the current global reserve system, and the case for reform of the existing reserve system is still being debated. The present system, labeled by some as the revived Bretton Woods system, is centered on the US dollar, and many developing economies maintain a fixed or managed exchange rate relative to the US dollar, and have accumulated massive US dollar reserves. However, the world today is much different from that which existed under the original Bretton Woods system after World War II. The once-dominant role of the US in the world economy has diminished, and the global economy now has three centers-the United States, the European Union, and Asia. The growing popularity of the euro as a reserve currency demonstrates that it is possible to have more than one reserve currency.

In particular, the evolution of the global reserve system has profound implications for the economies in Asia. The region holds close to half of the world's total foreign exchange reserves, and is highly dependent on international trade and capital flows for its prosperity, giving it an enormous stake in the global reserve system's development. The significant role of global imbalances in the ongoing global economic crisis has provided a fresh momentum and impetus to the long-standing issue of reforming the global reserve system. The crisis has also started a debate among academics and policy makers about whether the current global reserve system is unstable and inefficient, and whether the dollar-dominated system has contributed to the global crisis.

The conference is part of a research and technical assistance project, "The Future Global Reserve System-An Asian Perspective," initiated by the Asian Development Bank and the Earth Institute at Columbia University.

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Objectives

A follow-through to the project's initial conference in New York, United States, the conference will continue to examine important issues concerning the future of the global reserve system, its stability and its efficiency, the perspective and role of Asia in the reform process, while also assessing the current progress of global economic recovery. The proposals and recommendations gleaned from the conference aim to add to and enrich the debate on the current system's stability and efficiency by looking at the issue from the perspective of Asian countries, and thus empower Asia's policymakers and the public to participate more constructively in the emerging global dialogue on the issue.

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Outputs

An electronic book on the global reserve system, comprising the project's reports and papers, including those presented in this conference, will be published. The e-book will be made available on the internet and properly disseminated through internal channels and public outreach activities. One or more international conferences may also be organized in collaboration with external agencies to disseminate the findings of the book.

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Partners

Office of Regional Economic Integration, ADB
Earth Institute at Columbia University