Must-Read: Carmen Reinhart: The Return of Dollar Shortages

Must-Read: The IMF is, for moral hazard reasons, not a redistributionist but a system stability-preserving agency. In a better world, either a WTO or private sector insurers would provide developing country social insurance to cushion the impact of commodity price fluctuations. That is not the world we live in:

Carmen Reinhart: The Return of Dollar Shortages: “Seven decades later, despite the broad global trend toward more flexibility in exchange-rate policy and freer movement of capital across national borders, a “dollar shortage” has reemerged…

..The source of the dollar shortage is not the need for post-conflict reconstruction (though in some cases that is also a contributing factor). Rather, countries… have been hit very hard by plunging oil and commodity prices since 2012…. For countries that had embraced more flexible exchange rates… the initial reversal of oil and primary commodity prices ushered in a wave of currency crashes, while those that maintained more rigid exchange-rate arrangements experienced rapid reserve losses. Because the price slump has persisted, by 2015 capital controls were being tightened and currency pegs were being adjusted or abandoned. Fining, threatening, or even jailing informal currency traders have not been particularly successful….

Of far greater urgency is that dollar shortages have become food shortages in countries such as Egypt and Venezuela, as well as much of Sub-Saharan Africa…. The most vulnerable segments of the population have been left at real risk. The Marshall Plan, through its generous provision of grants, was designed to relieve the dollar shortage in post-war Europe. No modern-day equivalent is visible on the horizon…. It is more plausible to expect a variant of the 1980s, with more emerging and developing countries seeking IMF programs. This, perhaps, may be an opportunity for China to fill a void at the top.