The IMF’s Next Mission?

With imbalances threatening ongoing disruption to the global economy, Harold James, history and international relations professor at Princeton University, proposes a new task for the International Monetary Fund. In the past, the IMF has served as a crisis manager for global economic problems, and James proposes that the IMF assist nations with massive sovereign funds. China has $1 trillion in such savings and Saudi Arabia is expected to create a fund nearly as big. “The rise in reserves in many Asian countries was a deliberate response to the 1997 financial crisis, which fueled disillusion with the IMF,” writes James. Surprisingly, large amounts of surplus cash can pose problems for an economy: Fast diversification without ample research can cause savings to vanish. The funds can also attract unwanted attention, as receiving countries question political motivation. The IMF is poised to provide valuable advice for countries seeking to invest their savings in an uncontroversial way, but must first take steps to earn the trust of nations who hold the surpluses. – YaleGlobal