WATERLOO, Canada — February 20, 2014 — Allowing emerging economies to issue debt  in nominal local currency units would offer risk-sharing benefits and bring some stability to debt-to-GDP ratios, according to one of two new papers co-published by The Centre for International Governance Innovation (CIGI).

In Promoting the International Use of Emerging Country Currencies: The Case of Local Currency Debt Issuance for Latin America and the Caribbean, Andrew Powell highlights the importance of emerging economies being able to issue debt externally in their local currency, and offers suggestions for achieving this.

Powell writes: “One approach is for a third entity to take on the relevant currency risk. There have already been some initiatives along these lines, and these could potentially be scaled up, to allow local currency lending in greater quantities to sovereigns.” Alternatively, Powell suggests that “guarantee instruments might be developed on local currency instruments to tip the balance in favour of local currency issuance by reducing the premium to issue in local currencies versus in US dollars.”

In the second paper, Reforming the International Monetary System in the 1970s and 2000s: Would an SDR Substitution Account Have Worked?, Robert N. McCauley and Catherine R. Schenk analyze the discussion of a substitution account in the 1970s and how the account might have performed had it been agreed in 1980. The substitution account would have allowed central banks to diversify away from the dollar into the IMF’s Special Drawing Right (SDR), which is composed of a basket of currencies including the US dollar, Deutschmark, French franc (later euro), Japanese yen and British pound, through transactions conducted off the market.

McCauley and Schenk conclude that “although the substitution account was aimed at resolving the ‘stock’ problem of large existing balances of US dollar reserves, its benefit measured in stock terms would have eroded steadily over time.”

The two papers are the final installments in a series co-published by the Asian Development Bank, CIGI and the Hong Kong Institute for Monetary Research. For more information on The BRICS and Asia, Currency Internationalization and International Monetary Reform series, including free PDF downloads of each paper, please visit: http://www.cigionline.org/series/brics-and-asia-currency-internationalization-and-international-monetary-reform.


Andrew Powell is the principal advisor in the research department of the Inter-American Development Bank (IDB). He was formerly the head of research (March 1995–June 1996) and then chief economist (June 1996–April 2001) of the Central Bank of Argentina, and represented Argentina in G20 meetings and many other international events. He was subsequently professor at the Universidad Torcuato Di Tella, Buenos Aires, until September 2005 and then joined the research department of the IDB. He moved to be the regional economic advisor for the Caribbean region at the IDB and then returned to the research department in November 2010 to take up his current position. He has published numerous academic papers in leading economic journals on commodity markets, risk management, the role of multilaterals, regulation, banking and international finance. Most recent papers have focussed on the dangers of capital inflow surges, sudden stops, inflation targeting and the long-run behaviour of commodity prices.

Robert N. McCauley serves as the senior adviser, Monetary and Economic Department of the Bank for International Settlements (BIS) in Basel. Prior to this, he was the chief representative for Asia and the Pacific of the BIS. Before joining the BIS, he worked for 13 years for the Federal Reserve Bank of New York, serving at times as chief economist for the interagency committee of bank supervisors that rates country risk. In 1992 he taught international finance and the multinational firm at the University of Chicago’s Graduate School of Business.

Catherine R. Schenk is professor of international economic history at the University of Glasgow. She is the author of The Decline of Sterling (Cambridge University Press, 2010) and many other publications on the history of the IMS since 1945. She has been visiting professor at the University of Hong Kong and visiting researcher at the International Monetary Fund and the Hong Kong Institute for Monetary Research. She is also associate fellow, international economics at Chatham House, London. Her current research project, funded by the UK Economic and Social Research Council, explores the history of international banking regulation since 1965.

Declan Kelly, Communications Specialist, CIGI
Tel: 519.885.2444, ext. 7356, Email: [email protected]  

The Centre for International Governance Innovation (CIGI) is an independent, non-partisan think tank on international governance. Led by experienced practitioners and distinguished academics, CIGI supports research, forms networks, advances policy debate and generates ideas for multilateral governance improvements. Conducting an active agenda of research, events and publications, CIGI’s interdisciplinary work includes collaboration with policy, business and academic communities around the world. CIGI was founded in 2001 by Jim Balsillie, then co-CEO of Research In Motion (BlackBerry), and collaborates with and gratefully acknowledges support from a number of strategic partners, in particular the Government of Canada and the Government of Ontario. For more information, please visit www.cigionline.org.

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