Source: The New York Times Economix
After receiving support from the United States at the critical moment, Christine Lagarde was named Tuesday as the next managing director of the International Monetary Fund. In campaigning for the job, Ms. Lagarde, France’s finance minister, made various promises to emerging markets with regard to improving their relationships with the I.M.F. But such promises count for little.
The main impact of her appointment will be to encourage countries like South Korea, Brazil, India and Russia to back away from the I.M.F. and to further “self-insure” by accumulating larger stockpiles of foreign-exchange reserves –- the strategy that has been followed by China for most of the last decade.
From an individual country’s perspective, having large amounts of dollar reserves held by your central bank or in a sovereign wealth fund makes a great deal of sense – a rainy day fund in a global economy prone to serious financial floods. Read More