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All Fall Down

Debt, Deregulation and Financial Crises

Jane D’Arista

All Fall Down traces the ways in which changes in financial structure and regulation eroded monetary control and led to historically high levels of debt relative to GDP in both developed and emerging economies. Rising stocks of debt drove the global financial system into crisis in 2008 when households, businesses, financial institutions and the public sector in some countries strained to generate sufficient income for debt service. The stagnation and fall in asset prices that followed began the process of unwinding that led to a run on the financial sector by the financial sector.
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Chapter 29: Can special drawing rights replace the dollar and other national currencies as a reserve asset?

Jane D’Arista


As the unsustainability of the dollar/gold exchange standard became apparent in the 1960s, Robert Triffin called for a post-Bretton Woods system and led the way to authorization and issuance of Special Drawing Rights (SDRs) in 1967. Since then, crises have renewed discussions of ways to expand its role. In 2009, a United Nations Commission of Experts called for a global reserve currency to replace the dollar. It proposed automatic and regular SDR issuance but with concentrated issuance during crises. But that and other proposals ignore the fact that the SDR cannot be used as a means of payment in private international transactions. Moreover, even with new issues, the SDRs’ role would remain minor compared with trillions of dollars of outstanding dollar-denominated reserves. Nevertheless, SDR issuance provides a uniquely benign alternative to bailout loans and, as an established component of the international monetary system, should be included in any proposal for reform.

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