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The Future of the International Monetary System

The Future of the International Monetary System

Edited by Marc Uzan

Is the international financial architecture debate over? Not according to leading experts gathered together in this impressive volume who try to identify the key trends that will fashion the international financial system in the years ahead. As history has shown, the evolution of the international monetary system is a slow process. However, the authors argue that we may be entering a new era in which a combination of factors will have lasting consequences on the functioning of the international monetary system and the future role of the IMF.


Allen Frankel

Subjects: economics and finance, international economics, money and banking


Allen Frankel* The strong performance of emerging market credits (EMCs) in recent months has signaled the arrival of another financial spring. EMCs and other high-yield investments have performed well in an environment marked by short-term interest rates near the zero bound for several currencies. Daniel Marx has outlined a case in which an Argentine debt exchange could create value for investors. He knowingly attributes this possibility to good responses to appropriate incentives rather than any financial alchemy. In my short comments, I seek briefly to shed some light on a few of the lessons learned in recent years concerning financing choices made in periods when countries regain access to foreign capital. Argentina has just experienced an extraordinary period of crisis, during which most Argentine domestic cross-border financing transactions were severely affected. This included cross-border creditors with collateralized dollar-denominated loans to private firms. Some loans were backed by (collateralized by) domestic Argentine assets, such as home mortgages. Such collateralized credit arrangements were covered by the government’s required redenomination (pesoification) of credit contracts. In these cases, losses could be attributed to the actions of the sovereign, since they occurred even in cases when the borrower was willing and able to service its debt. Other private contracts emerged unscathed. One example of this type of contract is a so-called future flow transaction. The above discussion sets out a particularly cumbersome mechanism for countries to deal with post-crisis financing difficulties. Alternative mechanisms have been proposed that would deploy structured finance...

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