The Future Global Reserve System

The world is headed toward a multiple reserve currency system, and the challenge is to ensure stability during the transitory period. ADB President Kuroda (far left), ADBI Dean Kawai, Nobel Laureate Joseph Stiglitz, and renowned economist Jeffrey Sachs discuss the future of the global reserve system.

The global financial crisis has cast a range of challenges to the world, including the future shape and reform of the global reserve system. A wellfunctioning global reserve system is vital to international trade and capital flows, regional integration and cooperation, and sustainable economic growth.

The evolution of this system will have profound implications for Asian economies. The region holds over half of the world's total foreign exchange reserves, and is highly dependent on international trade and capital flows for its prosperity.

The global crisis has also provided fresh momentum to the long-standing issue of reforming the global reserve system. It has sparked debate among academics and policymakers on a number of key questions: Is the current system unstable? Is it inefficient? And what role did the US dollardominated system play in the crisis?

Internationally recognized scholars explored these questions with Asian and US researchers at ADBI on 17–18 March in Tokyo. The speakers included Joseph Stiglitz, Nobel Laureate and professor of economics at Columbia University; Jeffrey Sachs, director of The Earth Institute at Columbia University; Charles Wyplosz, director of the International Center for Money and Banking Studies at The Graduate Institute in Geneva; Haruhiko Kuroda, president of ADB; Masahiro Kawai, dean of ADBI; and Jong-Wha Lee, chief economist at ADB. The conference, The Future Global Reserve System—An Asian Perspective, was part of an ongoing research and technical assistance project initiated by ADB and Columbia University's Earth Institute.

Most participants agreed the US dollar will remain the main reserve currency well into the future, although with a diminishing weight. But the world is headed toward a multiple reserve currency system, and during the transition period the global reserve system could be unstable. In the short run, the euro will gain market share, especially in and around Europe. In the longer run, the yuan's role will also grow, especially in Asia.

Conference participants agreed that Asia will play a critical role in building a stable global reserve system. Global reserve pooling should be the first best choice for a stable global reserve system, and regional reserve pooling is the second best. However, with the difficulty in reaching a global agreement, deepening regional reserve pooling in Asia could be a practical choice.

See more details about the conference.