OCCASIONAL PAPER SERIES
                                                               NO 123 / FEBRUARY 2011
                                         THE INTERNATIONAL 
                                         MONETARY SYSTEM 
                                         AFTER THE 
                                         FINANCIAL CRISIS
                                         by Ettore Dorrucci
                                         and Julie McKay
                                        OCCASIONAL PAPER SERIES
                                                   NO 123 / FEBRUARY 2011
                                                        THE INTERNATIONAL 
                                                         MONETARY SYSTEM 
                                               AFTER THE FINANCIAL CRISIS
                                                                  by Ettore Dorrucci 
                                                                   and Julie McKay1
                                           NOTE: This Occasional Paper should not be reported as representing 
                                                      the views of the European Central Bank (ECB). 
                                                      The views expressed are those of the authors 
                                                     and do not necessarily reflect those of the ECB.
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                             This paper can be downloaded without charge from http://www.ecb.europa.eu or from the Social Science 
                                          Research Network electronic library at http://ssrn.com/abstract_id=1646277
                         1   European Central Bank, Ettore.Dorrucci@ecb.europa.eu, Julie.McKay@ecb.europa.eu. The views expressed in this paper do not necessarily 
                            reflect those of the European Central Bank. The authors would like to thank, outside their institution, A. Afota, C. Borio, M. Committeri,
                                 B. Eichengreen, A. Erce, A. Gastaud, P. L'Hotelleire-Fallois Armas, P. Moreno, P. Sedlacek, Z. Szalai, I. Visco and J-P. Yanitch, 
                                   and, within their institution, R. Beck, T. Bracke, A. Chudik, A. Mehl, E. Mileva, F. Moss, G. Pineau, F. Ramon-Ballester, 
                                               L. Stracca, R. Straub, and C. Thimann for their very helpful comments and/or inputs.
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               CONTENTS                                                                                                                    CONTENTS
               ABSTRACT 4 2.2 Addressing vulnerabilities 
                                                                             affecting the precautionary 
               EXECUTIVE SUMMARY                                 5           demand for international 
                                                                             currencies                               36
               INTRODUCTION 8                                                2.2.1 Measures to address 
                                                                                   external shocks resulting 
               1  THE LINK BETWEEN THE CURRENT                                     in the drying up of 
                  INTERNATIONAL MONETARY SYSTEM                                    international liquidity 
                  AND GLOBAL MACROECONOMIC                                         and sudden stops in 
                  AND FINANCIAL STABILITY                        9                 capital infl ows                    36
                  1.1  The contours of the international                     2.2.2 Creating disincentives 
                       monetary system                           9                 to national reserve 
                       1.1.1 A suggested defi nition of                             accumulation for 
                             an international monetary                             precautionary purposes             38
                             system                              9      2.3  Improving the oversight of 
                       1.1.2 The current international                       the system: risk identifi cation 
                             monetary system in                              and traction                             40
                             comparison with past systems  10                2.3.1 Improving oversight: 
                  1.2  The debate on the role played                               towards better risk 
                       by the international monetary                               identifi cation                     40
                       system in the global fi nancial crisis   16            2.3.2 Improving oversight: 
                       1.2.1 Overview                          16                  towards greater “traction”         51
                       1.2.2 The recent literature on the               2.4 Longer-term market 
                             US dollar, the “exorbitant                      developments shaping the 
                             privilege” and the Triffi n                      international monetary system            54
                             dilemma                           18 REFERENCES 55
                       1.2.3 Savings glut and real 
                             imbalances                        23
                       1.2.4 The liquidity glut, 
                             fi nancial imbalances and 
                             excess elasticity of the 
                             international monetary 
                             system during the 
                             “Great Moderation”                26
                       1.2.5 The implications of uneven 
                             fi nancial globalisation           28
               2  AFTER THE CRISIS: HOW TO SUPPORT 
                  A MORE STABLE INTERNATIONAL 
                  MONETARY SYSTEM                              32
                  2.1  Addressing vulnerabilities related 
                       to the supply of international 
                       currencies                              32
                       2.1.1 Towards a truly multipolar 
                             currency system?                  32
                       2.1.2 Towards a global currency 
                             system with elements of 
                             supranationality?                 34
                                                                                                                       ECB
                                                                                                         Occasional Paper No 123
                                                                                                                February 2011
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