At the invitation-only Jackson Hole Symposium Aug. 25-27, a handful of academics were commissioned to present papers that offer fresh ideas to stimulate those who hold the world's purse strings. In attendance were senior international central bankers including Federal Reserve Bank Chairman Ben Bernanke and the heads of such institutions such as the International Monetary Fund (IMF) and the World Bank. Each year, remarks by the Fed chair at the Wyoming event receive close press scrutiny.

At this year's conference, Cornell's Eswar Prasad, the Tolani Senior Professor of Trade Policy in the Dyson School, offered a road map to reform the international monetary system, rather than tweaking it. He argued that emerging markets should be protected from financial shocks through a global insurance scheme rather than by "self-insuring" -- purchasing government securities of the United States and other advanced economies tainted by heavy debt burdens. His insurance scheme would provide a safety net for countries that run into trouble because of global shocks, often through no fault of their own.

Emerging markets run into crises when foreign investors stop lending money to the country. Usually, the IMF makes loans to countries in trouble, with stringent conditions attached. Prasad's insurance scheme would require countries with higher risk to pay higher premiums up front, but when they need the payout, no new strings would be attached to the money. The plan provides only temporary respite for countries with deep fiscal problems.

"At heart it is a really simple idea," Prasad said. "Until now, the issue hasn't been framed this way, and most people have simply looked at tweaking the existing system. But there is a lot of institutional baggage out there that makes emerging markets reluctant to rely on the IMF, even though the IMF is supposed to offer protection to emerging markets. My scheme strips the problem down to its bare essentials and what the solution ought to be."

The plan went over well with leaders in emerging economies and some institutions, but not so well with the IMF and the U.S. Treasury, both of which would lose business -- and influence.

"The present system is a good deal for the United States," Prasad said. "The U.S. runs large deficits and accumulates a lot of debt. Luckily, there are foreign central banks -- especially in emerging markets -- that buy U.S. government bonds to insure themselves against financial crises, allowing the U.S. to get cheap funding for its debt. My plan would reduce foreign demand for U.S. or European debt, forcing these economies to be disciplined in their fiscal policies and control their budget deficits."

Prasad also notes in his paper that emerging markets have improved their economic policies over the past decade; they have reduced their debt levels and are no longer reliant on foreign finance for their economic growth.

"The big risks most emerging markets face from rising financial openness are no longer related to dependence on foreign finance, but arise because capital flows heighten homegrown vulnerabilities and exacerbate the costs of weak domestic policies and institutions," Prasad wrote.

In striking contrast, the advanced economies now look more vulnerable. "Advanced economies have boxed themselves in with undisciplined fiscal policies that could erode their productivity and growth," Prasad wrote.

If fast-growing economies were to adopt Prasad's ideas, it would amount to a "Role Reversal in Global Finance" -- the title of his paper -- in which the United States would need to take the advice it has for a long time dispensed to less-developed economies.