IMF Managing Director Calls for Strengthening the International Monetary System

February 10, 2011 : Mr. Dominique Strauss-Kahn, Managing Director of the International Monetary Fund (IMF), warned today that lack of action to reform the international monetary system could sow the seeds of the next crisis, and he called for renewed international cooperation for a better and stronger global recovery.

“Global imbalances are back, and issues that worried us before the crisis—large and volatile capital flows, exchange rate pressures, rapidly growing excess reserves—are on the front burner once again,” Mr. Strauss-Kahn said during a panel discussion on the international monetary system held at the IMF in Washington, DC. He said that “reforms to the international monetary system could both bolster the recovery and strengthen the system’s ability to prevent future crises.”

Mr. Strauss-Kahn emphasized three areas of reform in particular:

• Strengthening policy cooperation. Just as cooperation helped pull the global economy out of the crisis, Mr. Strauss-Kahn said further cooperation can now lay the foundations for more stable global growth. He pointed to the G-20’s Mutual Assessment Process (MAP)—as as an important first step toward creating more permanent frameworks for global policy cooperation—and to the IMF’s Financial Sector Assessment Programs and new reports on the spillover effects of countries’ policies on one another, as measures in train to strengthen surveillance.

• Reducing capital flow and exchange rate volatility. Countries’ policy responses to inflows of capital have an impact on other countries, Mr. Strauss-Kahn noted. He said that the Fund is looking at these issues including whether there was a need for globally agreed “rules of the road” for managing capital flows.

• Enhancing liquidity provision in times of extreme volatility. The global financial safety net has been strengthened in the wake of the crisis. Mr. Strauss-Kahn noted, for example, the introduction of the Flexible Credit Line and Precautionary Credit Line by the IMF. Another avenue worth exploring, he said, is how to “strengthen partnerships with regional financing arrangements.”

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