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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

8. Towards a New Global Reserve System

Joseph Stiglitz

The economic crisis has resulted in renewed attention to the creation of a new global reserve system. Some of the reasons should be obvious. The dollar-based reserve system has been fraying for years. At least since the beginning of the decade, the dollar no longer seemed a good store of value; its value was volatile and seemed to be subject to secular decline. But the crisis further undermined confidence in the US economy and its management

The choice facing the international community is whether to create, systematically, a new global reserve system, or to “muddle through,” moving from the dollar-based system to a two- or three-currency reserve system, which could be even more unstable and volatile.

This paper argues that a new global reserve system is absolutely essential, if we are to restore the global economy to sustained prosperity and stability. But achieving this, too, will not be easy. In the interim, the countries of Asia have an opportunity to strengthen existing regional arrangements. Doing so would not only contribute to the strength of the Asian economies, but possibly also be a critical building block in the creation of a new global reserve system.