European Central Bank Executive Board member Benoit Coeure said global excess currency reserves should be deployed via the International Monetary Fund to bail out countries facing payments crises.
“The IMF could borrow global excess reserves and use them to support program countries that are suffering from liquidity shortages under strict conditionality,” Coeure said, according to a text of a speech delivered in Frankfurt yesterday and released today by the ECB. “It would be advisable to use some of these excess reserves to stabilize the international monetary system, while Europe is enhancing its firewall.”
After European leaders pledged in December to boost contributions to the IMF by 200 billion euros ($263 billion) as a bulwark against a worsening of the two-year-old sovereign debt crisis, the fund’s managing director, Christine Lagarde, said she hoped other countries would “do their part.”
“According to estimates, U.S. government bonds of around $2.1 trillion and overall reserves of $6.5 trillion are held by emerging market economies,” Coeure said. “However, standard methods to quantify the optimal level of reserves suggest that the current level of reserves would not be justified purely for precautionary motives.”
Coeure, who joined the board of the ECB last month, added that as “significant progress” had been made in combating the sovereign debt crisis, euro-area government bonds “will be viewed once again as risk free.”