Towards a more resilient International Financial Architecture

The Ministry of Economy and Finance and the Bank of Italy, together with the Reinventing Bretton Woods Committee, co-organised a workshop to discuss policy options for a more resilient International Financial Architecture with stakeholders, including policymakers, international organizations and academia.

Towards a more resilient International Financial Architecture: G20 looks beyond immediate support to vulnerable countries

The Italian G20 Presidency and the not-for-profit organization Reinventing Bretton Woods Committee (RBWC) co-hosted, on Monday 10 May 2021, a virtual workshop entitled: ‘Towards a more resilient International Financial Architecture’.

The event gathered high-level policy makers and experts from academia and international organizations. The discussion focused on how the International Monetary System can make the ongoing recovery stronger, more inclusive and resilient. To this end, harnessing capital flows and maximizing the impact of the upcoming Special Drawing Rights (SDR) allocation will be crucial components.

It is to be stressed that a new SDR general allocation of USD 650 billion was approved by G20 Finance Ministers and Central Bank Governors, in their last meeting in April 2021, as part of a broader effort to support vulnerable countries in dealing with the fallout from the pandemic. The SDR is an interest-bearing international reserve asset, created by the IMF in 1969, which recipient countries can hold as part of their foreign exchange reserves or exchange for freely usable currencies.

Participants agreed that this new SDR allocation can be a game changer for vulnerable countries, as was the case with the last allocation in the aftermath of the Global Financial Crisis. As a matter of fact, SDR can substantially boost their reserves and be an important source of financing for the recovery.

The debate was also an opportunity to further consider policy options to redirect SDRs from advanced economies to countries that need them most, in order to maximize the impact of the upcoming allocation.

The debate touched also upon capital flows, whose configuration represents a key feature of the international financial architecture. The panel discussion focused on the evolution of capital flows since the outbreak of the pandemic, the policy responses adopted, and how these fit in the context of the IMF Integrated Policy Framework, with an eye to the upcoming review of the IMF’s Institutional View.

Discussions on these issues will continue in the coming months, as the international community will be engaged in fostering an inclusive economic recovery.

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