From Juscelino Colares, Global Imbalances and Liquidity-Induced Bubbles: The Need for International Monetary Reform, posted on SSRN. Here's the abstract:
From the paper, here's more about his suggestion for "cooperative, multinational exchange rate adjustments":Economic analyses vary with respect to the extent to which deregulation contributed to the financial crisis of 2008-2009, but coalesce on one major cause: excessive leverage and risk-taking. Yet, excessive risk-taking was nearly ubiquitous and occurred despite different levels of regulatory stringency across nations, suggesting that regulatory failure, though a contributing factor, ought not to be singled out as the sole cause of the current crisis. This commentary discusses how some features of the international trade and monetary regime have played a major role in producing the recent crisis. It maintains that persistent underlying global imbalances in exchange rates, trade, savings and consumption create the liquidity conditions ideal for the development of bubbles in several countries. Because the existing WTO/IMF legal infrastructure was designed to address balance-of-payment crises in narrow contexts, only a set of cooperative, multinational exchange rate adjustments would prevent the destabilizing effect that accumulation of massive currency reserves can have on world trade flows and national economies. Such global macroeconomic coordination would require surplus and deficit countries to accept monetary, budgetary and geopolitical trade-offs if they wish to forestall the rise of protectionism and promote a stable international economic environment.
A multilateral international monetary agreement that creates a new forum for macroeconomic coordination with some enforcement mechanism would be an alternative to the current rhetoric-based method of discussing currency adjustments. For example, the current bilateral approach to "talking currency" between the United States and China—they hold meetings every six months to discuss currency and other economic matters—has not produced results.19 A new multilateral agreement could, for example, bestow the authority to recommend adjustments in the exchange value of national currencies on a new or existing multilateral institution. In cases of persistent trade imbalances, this international monetary authority could tax a portion of a country's excess reserves (held in deposit) so as to provide incentives for countries not to run trade surpluses for a number of years. Such a mechanism would promote a perennial state of international trade balance, characterized by smoother fluctuations in global liquidity conditions, resulting in a "less interesting" (some would say less innovating) financial world. More importantly, it would be a welcome departure from an as-yet ineffective bilateral system that produces little result and creates trade tensions and resentment on both sides. This institution could also serve as a permanent forum for negotiations concerning future global macroeconomic issues requiring multinational coordination.
