The International Monetary System and the Developing World

This chapter analyzes how the international monetary system can better support developing countries. It starts with a brief look at how the existing system and IMF financing have evolved. It then analyzes specific challenges that developing countries face, particularly the management of procyclical behavior of private capital flows and the volatility of commodity prices. This is followed by an analysis of the role of Special Drawing Rights (SDRs) and the governance of the IMF, but also the weakness of regional monetary organizations. Based on this analysis, it presents several proposals for the reform of the international monetary system to benefit developing countries(i) give the SDRs a much more active role in the system, including a larger allocation to developing countries; (ii) improve the credit lines for low-income countries and expand the role of the contingency facilities that have been created in recent years; (iii) guarantee that conditionality is strictly macroeconomic; (iv) implement the increase in Fund quotas that was approved in 2023, together with the reforms in the share of member countries; (v) expand the role of regional monetary arrangements; and (vi) promote greater competition among international reserve currencies.