Expanded WB and IMF roles

Put reserves to work

One man, the former US Treasury Secretary Lawrence Summers, suggests that the volume of money in developing countries’ banks that is needed to guard against FX crisis is much lower than the actual volume of the money they contain. This bulk of cash is typically in the form of short term US Treasury bills with very low RORs. The suggested fix is that the IMF and WB should open an asset management arm so that the extra cash (in excess of $1,500 billion) could be put to a more profitable use.

Whether the money is used to invest in high-return imports (such as life-saving drugs or capital goods for infrastructure projects) or private sector development (like China and to some extent, India).

The IMF and WB would be in a good position to do this because of their existing infrastructure of coaching and technical support. They could, in conjunction with the developing country, evaluate the level of liquid cash that is needed and how to best deploy the remaining cash. The article goes on to state the potential pitfalls; corruption, mismanagement and the ‘squandering of reserve assets by spendthrift governments’.