The problems facing the international monetary system

The IMF’s new managing director (Kristalina Georgieva) will have to address the shortcomings of the international monetary system: Too much liquidity (central bank money) has been issued, resulting in a destabilising increase in the size and volatility of international capital flows. International capital flows do not head from wealthy countries (with high per capita capital) to poor countries (with low per capita capital), which is in efficient. They primarily flow to the United States, which is the wealthiest country with the highest per capita income. Central banks do not take into account the international externalities of their monetary policies: when the Federal Reserve for example moves its interest rates, it does not consider the effects of this change on other countries, in particular emerging countries.