##f until 2007, showing how global savings – investment imbalances have played a fundamental role that must not be neglected. 8 these imbalances were ultimately the symptom of the creation of excessive international liquidity by countries like the united states and of excessive savings by countries like china, and were associated with a reduction in the cost of capital and interest rates, in particular in the united states. this spurred an unsustainable boom in consumption as well as excessive risk - taking, both among consumers and financial institutions. these imbalances contributed to the large financial distortions and bubbles in global financial markets, which created the preconditions for today ’ s crisis. neglecting imbalances as a source of risk is not the best way to improve the crisis prevention arm of the imf. how can we expect the international monetary order to develop? and how can we strike a better balance between financing and adjustment? there is a risk that the forces favouring earlier and more effective adjustment of imbalances, and thus helping to avoid financing crises, have been weakened. in the current discussion on the reform of the international financial system, not many are suggesting that the imf should play a stronger role in preventing the accumulation of excessive external imbalances and in fostering more disciplined domestic policies. just to give an example, the decision on bilateral surveillance over members ’ policies, aimed at identifying fundamental exchange rate misalignments, has been modified to allow greater discretion in surveillance, especially exchange rates. this might look like a tactical choice, but i doubt that it will result in a tougher hand for the imf. while emerging and developing countries are requesting a stronger voice in the imf, they also seem to be suggesting that they would like this institution to be less intrusive, imposing less conditionality while at the same time providing more and cheaper financing. advanced economies seem to be supporting this view, having inundated the imf with funds, most of them available with very little conditionality or none at all. this might be appropriate in times of systemic crisis but cannot be sustainable in normal times. some thought should perhaps also be given to the need for a strategy to exit from cheap and unconditional imf financing. overall, most of the imf ’ s shareholders seem to favour making imf financing easier. the idea of enhancing the role of the sdr, or another world reserve currency, goes towards facilitating the financing needs of both deficit and surplus countries

a staff team from pdr, res and whd, approved by mark allen and michael deppler ( 29 june ). post adjustment even harsher. that is the experience of the gold standard, the last world currency. in sum, a new world monetary order – that is, a framework for payments between residents of different countries which ensures smooth trading in goods, services and financial assets – requires a mechanism to keep imbalances in check. key elements of such a mechanism include a prominent role for the imf in two essential areas : strong and effective surveillance in crisis prevention, and responsible lending, with appropriate limits and conditionality, to countries in need. this was the consensus prevailing until just before this crisis. there is a risk that the short - term objectives pursued to resolve the current crisis will change this consensus. a new monetary order must first and foremost aim to prevent crises, not to postpone them.