Eichengreen: IMF-issued bonds could be new global reserve asset
The dollar’s fragile. The Euro is sick. The International Monetary Fund’s Special Drawing Rights, which might seem to be an international reserve currency in waiting, aren’t an attractive option because they’re hard to use and mostly based on the dollar and the Euro in any case. What’s the alternative then? Barry Eichengreen has an idea: ...
The dollar's fragile. The Euro is sick. The International Monetary Fund's Special Drawing Rights, which might seem to be an international reserve currency in waiting, aren't an attractive option because they're hard to use and mostly based on the dollar and the Euro in any case. What's the alternative then? Barry Eichengreen has an idea:
The dollar’s fragile. The Euro is sick. The International Monetary Fund’s Special Drawing Rights, which might seem to be an international reserve currency in waiting, aren’t an attractive option because they’re hard to use and mostly based on the dollar and the Euro in any case. What’s the alternative then? Barry Eichengreen has an idea:
A better idea is to start work now on creating a more attractive global reserve asset. The ideal instrument would be a global-GDP-linked bond, the returns on which would vary with global growth rates, just as returns on the GDP warrants issued by the governments of Costa Rica and Argentina, for example, vary with their national growth rates.
This would enable central banks to hold instruments that behave like a widely diversified global equity portfolio. They would be compensated for inflation and currency depreciation in the US and Europe, since the payout would depend on these economies’ nominal, not real, GDP. The IMF could use its bond-issuing power to purchase GDP-indexed bonds from national governments, thereby providing the new global reserve assets with backing and interest-generating capacity, while creating an incentive for governments to issue them.
David Bosco is a professor at Indiana University’s Hamilton Lugar School of Global and International Studies. He is the author of The Poseidon Project: The Struggle to Govern the World’s Oceans. Twitter: @multilateralist
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