International Monetary Systems (IMS Barter) history

McKinnon, Ronald I., The Rules of the Game: International Money and Exchange Rates, MIT Press, 1996.

Furthermore, in the face of the crisis of several emerging economies that started in East Asia, the IMF created the Supplemental Reserve Facility in December 1997, which served as the basic framework for the largest loans made to emerging and developing countries during this crisis.

The basic reason was that flexible exchange rates generated a ‘privatization of risk’, to use Eatwell and Taylor’s (2000) terminology, which induced capital flows associated with different perceptions of risk by market agents.

At the same time, European countries strived to create a unified currency in steps, which was achieved in 2002.

However, this led to the initiative by Mexico to introduce CACs into a March 2003 New York bond issue, which thereafter became regular practice, as was already the case with London bond issues.

For developing countries, and particularly for middle-income countries, there was much less of a sharp change relative to the past, as they had been using other forms of flexibility, including the crawling peg and managed floats (Reinhart and Rogoff 2004; see also Chapter 3 in this volume).

By 2005, the US changed its stance, blaming China and its neighbours for harming its domestic manufacturers and for not letting their currencies rise.

The complementary policies were the Marshall Plan (European Recovery Act) and the European Payments Union (EPU). The former provided resources for the European reconstruction in amounts that neither the World Bank nor the IMF could have provided (Eichengreen 2008: ch.

The other important decision in terms of international liquidity provision was the largest issue of SDRs in history, also agreed to in 2009: SDR 161.2 billion, equivalent to US$250 billion.

In 2010, there was also agreement on an IMF quota reform—which unfortunately took more than five years to become effective due to the lag of final approval by the US Congress.