The United States Federal Reserve’s recent decision to launch a thirdround of “quantitative easing” has revivedaccusations by Brazil’sfinance minister, Guido Mantega, that the US has unleasheda “currency war.” In emerging-market countries that are already struggling withthe impact of rapid currency appreciation on their competitiveness,expansionary measures announced in recent weeks by the European Central Bankand the Bank of Japan have heightened the sense of alarm at the Fed’s decision.

My sense is that both sides are right. The Fed was right to adopt newexpansionary monetary measures in the face of a weak US recovery. Furthermore, tying itto improvements in the labor market was a particularly important step – one thatother central banks, especially the ECB, should follow.

Of course, monetary expansion should be accompanied by a less contractionary fiscal stance in industrialcountries. But the advanced economies’ room for fiscal maneuver is more limitedthan it was in 2007-2008, and America’spolitical gridlock has deepened, all butruling out further stimulus through budgetary channels. Although theeffectiveness of a new round of quantitative easing will be limited, as Mantegaargues, the Fed had no choice but to act.

But Mantega is also right. Given the role of the US dollar as the dominantglobal currency, the Fed’s expansionary monetary policy generates significant externalities for the rest of the world – effectsthat the Fed is certainly not taking into account. The basic problem is thatthere are essential imperfections in an international monetary systemthat is based on the use of a national currency as the world’s mainreserve currency.

Thisproblem was highlighted as far back as the 1960’s by the Belgianeconomist Robert Triffin, and, more recently, by the late Italian economistTommaso Padoa-Schioppa. “The stability requirements of the system as a whole,” Padoa-Schioppaargued, “are inconsistent with the pursuit of economic and monetary policyforged solely on the basis of domestic rationales.”

In particular, expansionary monetary policies in the US (indeed, inall advanced countries) are generating high risks for emerging economies.Because interest rates must remain very low in developed countries at least forthe next several years, there are now strong incentivesto export capital to higher-yielding emerging economies. But such capitalinflows threaten exchange-rate overvaluation,rising current-account deficits, and asset-price bubbles, all of which have inthe past led to crises in these economies.

In short, the medium-term benefits that emerging economies could receivefrom faster growth in the USare now being swamped by short-term risksgenerated by the “capital tsunami,” as Brazilian President Dilma Rousseff hascalled it.

The basic problem is the lack of a broader agenda that would make theFed’s position consistent with that of Mantega and other emerging-countryofficials. That agenda must include two issues of global monetary reform thatremain unaddressed: coordinated global regulation of capital flows in the shortterm, and a long-term shift toward a new international monetary system based ona true global reserve currency (possibly based on the International MonetaryFund’s Special Drawing Rights).

The US could benefitfrom such policies, as capital-account regulation would force investors to findopportunities at home, while a true global reserve currency would free the USfrom concerns – and harsh rebukes – aboutthe implications of its monetary policy on the global economy. At the sametime, emerging markets would gain the full benefits of expansionary monetarypolicy in the US,to the extent that it boosts demand for their exports.

IMF Managing Director Christine Lagarde has called for coordinated actionto sustain the global recovery. Moreover, in October, the IMF is set to releaseofficial “rules of the road” for the use of capital-account regulations. TheIMF/World Bank meetings in Tokyoon October 12-13 thus might be the ideal opportunity to begin broadening theinternational monetary agenda – by giving the green light to coordinatedregulation of cross-border capital flows, and launching a discussion about thefuture of the international monetary system.