The Road to Redemption
This chapter proposes the creation of a synthetic unit of account in which claims on a diversified group of emerging-market economies can be denominated, together with steps by the international financial institutions to develop a liquid market in claims denominated in this unit. As this new unit conquers space in the global portfolio, it will become possible for emerging-market borrowers to issue claims denominated in the underlying currencies and to place them on international markets. The result will be a more efficient international diversification of risks and a reduction in financial fragility. The World Bank has attempted to promote the development of insurance markets for terms-of-trade risk. The chapter's proposal is one more attempt, in this spirit, to help to complete incomplete financial markets.
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