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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

13. The Future of the Global Reserve System

Daniel Gros, Cinzia Alcidi, Anton Brender, and Florence Pisani

In the de facto reserve system from 2000-09, emerging countries with a high savings propensity exported huge amounts of savings through the accumulation of reserves. The reserve currency country has been the main importer of those savings and hence, the main supplier of the accumulated reserves. The transatlantic financial system provided a complex web of risk-taking chains which assumed most of the risks arising from the fact that while ultimate borrowers (US households) supplied risky assets, savers required safe assets. The excess risk-taking that took place in the Western financial system is thus closely related to the accumulation of reserves observed during this period.

The authors also explore the prospects for the next decade by asking the following questions: will reserves continue to grow and will the mismatch between assets supplied and demanded be overcome by the huge expansion of public debt? What are the obstacles to currency diversification by reserve accumulators? They conclude that reserve-accumulating countries can help the reserve system to work better by providing more information about the nature of the assets they accumulate and by diversifying into risky assets. Reform of the reserve system should aim at making better use of the excess savings in emerging market economies.