Substitution account: history, mechanism, problems and reform prospects

ZHENG Liansheng1

(1.Institute of Finance and Banking, Chinese Academy of Social Sciences, Associate research fellow)

【Abstract】Substitution account is an open fund based on the IMF’s special drawing rights and it aims to enable central banks to diversify away from the US dollar into SDR. Through asset composition, asset scale, liquidity and yield substitution, the account is conducive to the establishment of the preparation mechanism for issuing SDR and thus facilitates the reform of international monetary system. However, given the technical and systematic problems and political games involved in the substitution, the account is yet to be established. In the wake of the 2008 global financial crisis, super-sovereign currency has become a main target of the reform of the international monetary system. Therefore, it may become a main task for the international community to properly combine SDR and the substitution account mechanism to explore feasible methods to push the reform of international monetary system.

【Keywords】 substitution account; special drawing rights; international monetary system;

【DOI】

【Funds】 Youth Project of the National Social Science Foundation (14CJL017) Main Project of the National Social Science Foundation (13AJY018) Phased Research Achievement of Main Project of the National Social Science Foundation (15AJY017)

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(Translated by XU Xiangmei)

    Footnote

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    [27]. [5] In the monetary substitution plan, the IMF mainly deals with the member states in the currency basket of SDR in an off-market trades way rather than through the market to avoid the impact on the market. For example, after Germany deposits the US national debt into the IMF, the IMF will deal with the treasury department of the US. [^Back]

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    [56]. [1] The interest payment of the dollar assets in the substitution account should be based on the asset class, but in order to fill the exchange risk and exchange rate risk, the program of Macaulay believes that if the United States can pay for the dollar assets (mainly bonds) held by the SDR by using the long-term interest rate, then the exchange risk and exchange rate risk of the substitution account can be balanced. They argue that if the substitution account can become the important creditor of the United States, it would be feasible for the United States to get long-term stability of the financing cost by a slightly higher cost. (Ma Cauley, R. N. & C. R. Schenk. Reforming the International Monetary System in the 1970s and 2000s: Would an SDR Substitution Account Have Worked? BISworking paper, No.444, March 2014). [^Back]

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This Article

ISSN:1007-0974

CN: 11-3799/F

Vol , No. 01, Pages 103-118+7

January 2016

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Article Outline

Abstract

  • 1 The development process of the substitution account mechanism
  • 2 Analysis of substitution account mechanism
  • 3 Constraint analysis of substitution account mechanism
  • 4 Reform prospect
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