This chapter reviews some of the major proposals for reform of the international monetary system and provides a rough assessment of their costs and benefits. The criteria for assessment should include efficiency, stability (incentives to correct external imbalances), equity, and feasibility, but quantifying each criterion would be extremely difficult – an entire research agenda in its own right. The chapter considers three reform proposals: a bigger and better IMF, a global central bank with international currency, and international policy coordination.

A bigger and better International Monetary Fund

There have been many proposals to reform the IMF with the objective of improving the performance of the international monetary system. The discussion here focuses on funding, instruments, surveillance, and governance.

Funding

The lending capacity of the IMF as a lender of last resort for sovereign countries has declined as a share of global GDP. Establishing automatic quota increases, perhaps combined with a one-off initial increase, could automatically adjust the size of the IMF to the size of the rapidly growing international economy. One proposal calls for automatic quota increases that, on average, equal average annual real global GDP growth but with a countercyclical wrinkle: countries would contribute more during high growth years and less during subpar growth years.