Special drawing rights, the dollar, and the institutionalist approach to reserve currency status

Click to increase image sizeClick to decrease image size ACKNOWLEDGEMENTS The author would like to thank Mark Blyth, Catherine Weaver, and Theodora Welch for their very helpful and generous comments. Notes 1. Although the terms sound similar, the institutionalist approach to reserve currency status differs from ‘neoliberal institutionalism’. This paper's institutionalist approach seeks to show how institutions, like the Federal Reserve, that issue a currency can enhance the currency's reserve status by increasing the liquidity of markets or by intervening in financial crises. In contrast, neoliberal institutionalism is concerned with how international institutions can promote cooperative outcomes by solving collective action problems. 2. The 10 trillion is taken from summing ‘column F’ entitled ‘amount extended’ (measured in millions of dollars) in the site's Excel table, ‘Central Bank Liquidity Swap Data’. 3. Trade acceptances are a form of double-name commercial paper, or short-term corporate debt instrument. They allow exporters to be paid immediately for goods that have shipped, instead of waiting for the goods to arrive overseas and be sold. See Broz (1997 Broz, J. L. 1997. The International Origins of the Federal Reserve System, Ithaca, NY: Cornell University Press. Google Scholar, 37–8). 4. That is not to say that domestic financial institutions consistently enhance the international role of a currency. They can make mistakes, as some economists believe the Federal Reserve did during the 1930s, when it contracted the money supply, prolonging the Great Depression. See Bernanke (2004 Bernanke, B. S. 2004. “Remarks by Governor Ben S. Bernanke at the H. Parker Willis Lecture in Economic Policy, Washington and Lee University”. Lexington, VA March 2, http: //www. federalreserve. gov/boarddocs/speeches/2004/200403022/default. htm (accessed 18 October 2011). Google Scholar). 5. Eichengreen, however, does highlight insightfully other limits with SDRs, such as their lack of liquidity and their inability to be used in transactions with private parties. 6. The international organizations that can use SDRs are listed in IMF (2009a IMF. 2009a. “Guidance Note for Fund Staff on the Treatment and Use of SDR Allocations”. April 28, http: //www. imf. org/external/np/pp/eng/2009/082809. pdf. Google Scholar: 13, n. 23). 7. According to Mark Blyth, the rate of financial crises during the 1990s was 4. 5 times greater compared to the rate during the preceding 200 years; see Blyth (2003 Blyth, M. 2003. “The Power of Financial Ideas: Transparency, Risk, and Distribution in Global Finance”. In Monetary Orders, Edited by: Kirshner, J. 239–59. Ithaca, NY: Cornell University Press. Google Scholar: 239, n. 4). 8. I have updated Stiglitz's reserve figures using IMF (2010c IMF. 2011c. “SDR Interest Rate Calculation”. October 18, http: //www. imf. org/external/np/fin/data/sdrᵢr. aspx (accessed 18 October 2011). Google Scholar). 9. Lawrence Summers has also pointed to the enormous opportunity cost for developing countries of accumulating dollar reserves; see Summers (2006 Summers, L. 2006. “Reflections on Global Account Imbalances and Emerging Markets Reserve Accumulation’”. Edited by: Jha, L. K. Mumbai: Memorial Lecture, Reserve Bank of India. March 24, John F. Kennedy School of Government, http: //www. hks. harvard. edu/fs/lsummer/speeches/2006/0324ᵣbi. html (accessed 18 October 2011). Google Scholar). 10. This raises a major but understudied problem for political philosophers – the justice of the global financial system.