• What does China economic slowdown and its current adjustment means for capital markets and for the quest of renminbi internationalization? • Should and can the systematically important countries “internalize” their spillovers effects to mitigate negative external impacts?” I organize my points around the three functions of an IMS – liquidity, confidence and adjustment. On liquidity function, there are two areas that we require significant improvement on the current IMS. The first is related to excessive liquidity during normal times. What are the appropriate policies to curb excessive capital flows? The IMF’s approach advocates that recipient countries should implement the capital flow management measures and use macro-prudential tools. Hence, there is an asymmetric treatment of countries as source countries are not expected to do much if not at all. There is of course room for a symmetric treatment. The Holy Grail may exist in the IMF’s articles of agreement as it states in Section 1 that “each member shall seek to promote stability… by fostering a monetary system that does not tend to produce erratic disruptions”. The second is about the existence of safety nets providing liquidity during financial stress times. Again, the optimal provision of liquidity is the main issue. To what extent it should be divided among global, regional and local sources. It is a classic efficiency versus moral hazard problem. Changes in governance structure of the global safety net providing IOs have a potential to alleviate this problem.

The 2010 IMF quota and governance reforms are a significant development as they give greater voice to EM countries on governing the IMF policies and procedures. This development together with increasing awareness of sufficient global safety nets would strengthen IMF recourses and reduce their stigma effect. Again, there is a symmetry issue in the provision of liquidity during financial stress times – whether there should be internationally designed mechanisms enforcing countries that supplied excessive liquidity in the first place also to provide liquidity to all recipient countries during financial stress times such as through currency swap arrangements. The confidence function of the IMS highlights the fact that all stakeholders including financial markets have greatest confidence in the functioning, resources and governance of the system. Strengthening its recourses, improving its governance and advancing its functions will crucially bolster all stakeholders’ confidence in the system. What have been done recently along the lines of the 2010 IMF quota and governance reform, the inclusion of the renminbi in the SDR system and the recent increases in the IMF resources greatly improved confidence in the IMS. The adjustment mechanism of an IMS is mostly related to its sustainability but also affects its confidence function. The IMS requires a symmetric and fair adjustment mechanism. The G20 plays a central role in the adjustment mechanism of the IMS through fostering international policy coordination and cooperation. The IOs, especially the IMF, largely execute this G20 objective through bilateral surveillance and multilateral surveillance or oversight of the world economy.