On the Economics of Cross-border Reparations Payments: The Case for a Bank of International Reparations

Abstract

This article considers the challenge of ensuring that international reparations payments are effective in benefiting the recipient countries of such reparations. To guarantee that these financial flows provide long-term benefits to the recipient economies, the article recommends the adoption of a developmental state approach to the use of the funds. It also considers in detail the advantages of establishing a Bank of International Reparations that serves as a trustee for the receipt and distribution of reparations, facilitates coordination of the use of reparations across countries to avoid disadvantageous forms of competition, provides investment banking services to support the use of the reparations to fund a domestically focused ‘sovereign wealth fund’, and provides ‘public option’ commercial banking services to recipient country firms in order to foster the growth of recipient country economies. Finally, the article finds that the most effective means of funding the reparations would be to use Special Drawing Rights (or SDRs).