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Message from ADB's President Contributors Acknowledgements Executive Summary and Recommendations Jeffrey D. Sachs, Masahiro Kawai, Jong-Wha Lee, and Wing Thye Woo Paper Summaries (full papers downloadable) International Monetary Advisory Group Global Financial Crisis, its Impact on India and the Policy Response Nirupam Bajpai To What Extent Should Capital Flows be Regulated? Maria Socorro Gochoco-Bautista The Case for a Further Global Coordinated Fiscal Stimulus Willem Buiter Managing a Multiple Reserve Currency World Barry Eichengreen From the Chiang Mai Initiative to an Asian Monetary Fund Masahiro Kawai An Asian Currency Unit for Asian Monetary Integration Masahiro Kawai The International Monetary System at a Crossroad Felipe Larrain B. Towards a New Global Reserve System Joseph Stiglitz A Realistic Vision of Asian Economic Integration Wing Thye Woo An Asian Monetary Unit? Charles Wyplosz Will US fiscal Deficits Undermine the Role of the Dollar as Global Reserve Currency? If So, Should US Fiscal Policy be geared to Preserving the International Role of the Dollar? Yongding Yu International Monetary Working Group International Reserves and Swap Lines: the Recent Experience Joshua Aizenman, Donghyun Park and Yothin Jinjarak The Future of the Global Reserve System Daniel Gros, Cinzia Alcidi, Anton Brender, and Florence Pisani Renminbi Policy and the Global Currency System Yiping Huang Will the Renminbi Emerge as an International Reserve Currency? Jong-Wha Lee Asia's Sovereign Wealth Funds and Reform of the Global Reserve System Donghyun Park and Andrew Rozanov Reforming International Monetary System Kanhaiya Singh Designing a Regional Surveillance Mechanism for East Asia: Lessons from IMF Surveillance Shinji Takagi

7. The International Monetary System at a Crossroad

Felipe Larrain B.

In the most likely scenario the US dollar will remain as the main reserve currency in the foreseeable future, but will face growing competition over the medium term from other national currencies, such as the euro, the BRIC (Brazil, Russia, India, and the People's Republic of China) currencies, the yuan, etc., and a supranational currency such as the SDR. Therefore, the dollar will probably lose weight in time as a share of international reserves. However, this process is likely to be slow and gradual, particularly due to lingering doubts about the future of the euro following fiscal problems in several countries of the Euro area.

The SDR is likely to gradually win greater importance as a reserve currency if it can play a larger role in trade and financial transactions in the global economy, and if it can substantially increase its liquidity and use as an international lender of last resort (ILLR) currency. The increase in 2009 of the SDR allocations and the flexible credit line go in that direction.