Search

We analyse the determinants of RMB as an international reserve currency and the impact of joining the Special Drawing Rights (SDR) on the currency swap agreements between China and other countries....

China has long been the world's second largest economy, with the largest foreign exchange reserves and the second largest share in world trade. However, its position in the global economy has long been recognized, but this recognition has not been accompanied by the international monetary significance of the yuan. Despite China's economic significance, the political importance and the voting power in the International Monetary Fund (IMF) cannot be compared to that of the U.S. because the U.S. has over 17% of the votes, whereas China has 3.8 %. Owing to that, the U.S., together with its allies, gets to block decisions and tailor global economic policy. Striving to establish the world's reserve currency, China has been leading comprehensive economic and trade policies while strengthening the yuan convertibility. As a result, effective October 1, 2016, the yuan has become a reserve currency in the basket of special drawing rights along with the dollar, the euro, the yen, and the British pound. China has been supporting the IMF reform while establishing new institutions aimed at redefining the current international policy under the strong influence of the U.S. The paper analyses the channels of Chinese authorities' actions and the prospect of recomposing the international monetary system and reducing the global U.S. influence, with the aim of identifying whether it is likely that the Chinese currency will obtain the status of the world currency.

We call for strengthening the Global Financial Safety Net (GFSN) to manage the economic effects of COVID‐19, in particular the massive capital outflows from emerging market and developing economies EMDEs and the global shortage of dollar liquidity. Both the United Nations (UN) and the International Monetary Fund (IMF) estimate that EMDEs need an immediate $2.5 trillion, yet the financing available to them is just $700 to $971 billion. To meet these immediate needs we propose to: (1) broaden the coverage of the Federal Reserve currency swaps; (2) issue at least $500 billion of special drawing rights through the IMF; (3) improve the IMF’s precautionary and emergency facilities; (4) establish a multilateral swap facility at the IMF; (5) increase the resources and geographic coverage of regional financial arrangements; (6) coordinate capital flow management measures; (7) initiate debt restructuring and relief initiatives; and (8) request that credit‐rating agencies stop making downgrades during the emergency. It argues that leaders should swiftly move to address these structural gaps in the GFSN: (1) agree on a quota reform at the IMF; (2) create an appropriate sovereign debt restructuring regime; (3) expand surveillance activity; and (4) adopt IMF governance reform and strengthen its relations with all agents of the GFSN. All of these reforms must be calibrated toward a just transition to a more stable, inclusive, and sustainable global economy.

After the 2008 financial crisis, the International Monetary Fund realises that reforms are needed to reduce the reliance on the US dollar as the only international reserve currency. It began to nurture super-sovereign reserve money where SDR (Special Drawing Rights) is the most favourable candidate. Joining SDR will push forward China’s exchange rate reform to meet the standard of a real international reserve currency, which requires more skilful domestic and international policy coordination.

To estimate the currency composition of China’s foreign exchange reserves and assess its effectiveness of management, the constrained least square method and variance sensitive analysis are utilized, respectively. Based on portfolio accounting identities, the change of foreign exchange reserves was decomposed into the net purchase change and the non-purchase change. The newly constructed non-purchase change was used to estimate the latent currency composition. Empirical results show that by the end of 2015Q1, China held about 63.6% of its reserves in the U.S. dollar, 19.6% in the euro, 3.09% in the Japanese yen, 4.89% in the pound sterling, 2.22% in the Canadian dollar, 2.03% in the Australian dollar, and 0.09% in the Swiss franc. Although the currency composition kept relatively stable, more attention had been paid to the emerging international currencies. China decreased the U.S. dollar share during the subprime crisis, while resorted to the portfolio rebalance strategy since 2011. The euro shar...

The impact of currency reserve accumulation is controversially discussed since reserve accumulation potentially destabilises the international financial system and causes crises due to higher systemic risk. The main aim of this paper is to put the macroeconomic role of currency reserve accumulation for four Asian economies under closer scrutiny. The key question is whether accumulating currency reserves is beneficial from a long†run perspective. Based on a vector error correction approach, we start by analysing long†run steady†state relationships between currency reserves, exchange rates against the US dollar, real GDP and interest rates. Our findings show that cumulated currency reserve shocks significantly affect real GDP. A likely explanation for our finding is that accumulation of reserves has supported growth through providing liquidity and supporting the development of the financial sector for the economies under observation.

In the postcrisis period, some foreign policymakers accused the Federal Reserve of engaging in “currency wars” and inadvertently creating “financial spillovers,” arguing that these were especially consequential given the dominant role of the U.S. dollar in international trade and finance. This lecture analyzes these critiques, and argues: (1) little support exists, either theoretical or empirical, for the currency wars claim; (2) the United States and its trading partners should use nonmonetary tools for dealing with spillovers; and (3) the benefits of the dollar standard to the United States and the world are considerably more symmetric than in the Bretton Woods era.

In recent years, China become the second largest economy in the world. Therefore, China has an important role in the Asia and Global Economy. China’s rapid economic growth is the reason why Renminbi (China currency) becomes an international currency. On October 2016, Renminbi was recognized by International Monetary Fund (IMF) as an international currency by including it in global reserve currency (Special Drawing Right). Furthermore, Renminbi is in the top 10 traded currencies in the world even in Asia. In global trade, China has trade relation with various country, so it can provide benefit for country that have economic relations with China especially countries in Southeast Asia which is a member of ASEAN-China Free Trade Area (ACFTA). The purpose of Renminbi Internationalization is to increase China’s economic growth and spillover from China to ASEAN. China’s economic spillover to ASEAN has been growing in the few past years through financial linkage and trade linkage. This paper examines China’s economics spillover to ASEAN-6 (Singapore, Malaysia, Thailand, Philippines, Indonesia and Laos) before and after Renminbi internationalization through both trade and financial linkage. We use ratio of ASEAN-6’s exports and imports to China to its total exports and imports as a proxy of trade linkage and ASEAN-6’s Stock Price Index as a proxy of financial linkage, while we use claim and share of Renminbi in global foreign exchange reserve as moderator variable to find out whether the Renminbi internationalization can strengthen China’s economic spillover to ASEAN-6 or not. Thus, we use Moderated Regression Analysis and Panel Least Square method in 6 ASEAN countries from 2012:Q1-2018:Q4. The result indicate that Renminbi Internationalization can strengthen China’s economic spillover to ASEAN-6 economies that can be seen through trade linkage with an increase in imports and through financial linkage with an increase in Stock Price Index.

Financial crisis is nothing new in the annals of history of the capitalistic path of economic development; it is a part of the business cycle. The theoretical basis is well entrenched in the concept of ‘Keynesian Cross’. The tale of crisis, dating back centuries, has taken a new turn with the call for more globalization—liberalize trade and open up the financial sector. This has made many nations vulnerable to crises that are likely to be repeated, perhaps frequently. Based on recent experience, warning signs can be read from the dollar-centric exchange rate, the mainstay for the stability of the current global financial system. To a careful observer, fatigue in the system cannot be overlooked.

This article examines the geopolitics, legal nuances and monetary policy which inform Carney's proposal. Part I sets out the application of block-chain technology in the context of payment systems, and discusses the geopolitics of Libra and the shift in focus to Central Bank Digital Currencies ('CBDCs'). It suggests that state-backed cryptocurrencies are more likely than their private sector counterparts to fit the role of true digital currencies, at least on a domestic level. Part II explains the legal distinctions between the cryptocurrency models proposed by Facebook and others, and CBDCs. The former fulfils the main functions of money by granting a claim to the holder, whereas the latter does so as an 'object' of monetary policy. A Global Stablecoin ('GSC') such as the SHC does not necessarily fall into either camp, but its success as a global reserve currency may hinge upon the fine details of its legal construction. In Part III, one conception of the SHC, based on the 'claims model' is set out. Whilst the use of block-chain technology is undoubtedly novel, there are significant similarities between this version of the SHC and previously rejected reforms to the 'Special Drawing Rights' (SDR) allocated by the International Monetary Fund ('IMF'). It is argued that the extent of the similarities indicates that the claims model is likely to face the same hurdles which stymied the campaign to develop the SDRs into a global reserve currency. This begs the question, however, of why Carney would propose the SHC if the odds in monetary policy were already so firmly stacked against it. Part IV considers the 'objects model' as applied to a SHC. It tentatively concludes that the features of the objects model which distinguish it from the claims model greatly improve its prospects of success. Specifically, the generation of network effect value, as a substitute for the convertibility value of SDRs, may be the decisive contribution of block-chain technology to a truly international currency. The article concludes that a claims-based SHC would, to a great extent, be an attempt to reinvent SDRs in a digital age, and that the advantages of block-chain technology will be insufficient to surmount well-established US monetary policy. The objects model, whilst more ambitious in some respects, constitutes a radically novel proposal which may, for that reason amongst others, gain global traction.

The Civil Code of Ukraine there are no specific rules governing contractual relationship currency bank account, and existing norms in the national legislation does not reflect the specificity, complexity bank currency relations; regulations that regulate banking operations in foreign currencies, in some cases inconsistent, uncoordinated and even contradictory; In addition, some based on somewhat outdated today philosophical position, affecting the development bank currency civil relations. Problems about the determination of the legal nature of the contract currency bank account, studied and continue to study the eminent jurist scholars, among which highlight G.F. Shershenevich, C.A. Fleyshyts, I.B. Nowicki, M.N. Agarkova, A.S. Ioffe, N.S. Kuznetsov, I.A. Bezkluboho etc. Purpose of the article – the definition of the legal nature of the contract currency bank account, as well as research and analysis of major scientific debate on the subject. Given the inextricable link between the two elements of a bank account without connectivity relations on the account balance on any loan or of storage, believe that the bank account agreement today is an independent civil - legal contract.

Purpose The purpose of this paper is to consider the implicit effect of the underlying foreign currency exposure on the performance characteristics of country exchange traded funds. Design/methodology/approach To arrive at an overall estimation of the exchange-traded fund (ETF)’s tracking error, the mean of the three measures of tracking error was calculated for both the hedged (r_LC) and unhedged (r_NAV) return series. Since tracking error does not capture all the risk inherent in a country index fund, the study extends the analysis using the Sortino and Modified Sharpe ratios. Findings The decision to hedge currency risk should not be taken on the sole basis of historical volatilities. The investor must also factor in transactions costs, the possible roll of futures contracts and prevailing interest rate differentials. If the rate on the foreign currency is greater than the dollar (euro) rate, the investor will pay for the hedge. If the rate on the foreign currency is less than the dollar (euro) rate, the investor will gain on the trade. Given that hedging entails additional costs, in cases where the neutralization of currency volatility only reduces risk modestly, it would be advisable to leave the exchange rate risk unhedged. We propose two metrics for ETF investors deciding whether to hedge a country ETF’s underlying currency risk. Originality/value The results highlight a key finding: while the majority of country funds accurately track the performance of the underlying foreign index when measured in the local currency, returns in the fund currency can be much more volatile. In breaking down the sources of country fund volatility, the paper demonstrates the impact of the underlying currency movements on overall fund risk. In cases where the currency impact has a significant impact on fund tracking errors, an index-oriented investor benefits from neutralizing the exchange rate effect. Additionally, as the Sortino and Modified Sharpe measures suggest that the underlying currency exposure offers in most cases a better risk-adjusted return for country exchange-traded funds (ETFs) in the listing currency, we also calculate the risk minimizing foreign currency exposure for each fund and propose a decision rule based on the net currency variance to decide whether to hedge the ETF’s currency risk. The optimal hedge ratio indicates that US-based investors should only partially hedge the underlying currency risk while European-based investors are better off fully hedging currency risk.

The “gold standard” is frequently mentioned in text books, but few without an economics background can fully understand it. This paper thus begins in 1896, when U.S. Presidential candidate William Jennings Bryan declared, “You shall not crucify mankind on a cross of gold.” Since going back to the middle ages, the world has had numerous monetary systems, which are here explained in comprehensible terms. A modern reoccurring idea is to return to some form of the gold standard, while some argue for switching to the Chinese yuan or another international reserve currency, which the International Monetary Fund (IMF) will adopt in their Special Drawing Rights starting in October, 2016. This paper is normative in that it comments on the current international structure, but uses economic principles to support its argument in favor of an internationally strong dollar. It thus traces the history of a topically contentious subject, with a basic regression indicating important predictive factors for the future. It offers that a new gold standard would not be in the world’s interest, interfering with monetary policy, while emerging market countries would be best to import more and financially deepen, which the regression shows was why the Chinese yuan was adopted by the IMF, then looking ahead to other parts of Asia and towards bitcoins.

The purpose of the paper is to analyze theoretical and practical aspects of the features of the IFI influence on transformation of national currency systems of such organizations’ member states. Defining features of interaction policy among national economies and IFI in the monetary sphere, considering countries’ socio-economic parameters of development, will allow monetary authorities to achieve the optimum level of development of its economy. Methodology. Theoretical base of the study are the provisions of general scientific theory of knowledge studied phenomena and processes, in particular: methods of induction and deduction (in determining classification criteria of IFIs impact on national currency system), analysis and synthesis (in determining the features and priorities of national currency system), comparisons, associations and analogies (the justification of characteristics of advantages and disadvantages of IFI). The information base for scientific research is scientific papers and publications of domestic and foreign scientists-economists, materials of scientific-practical conferences, legislative and normative documents, the IMF, World Bank and Asian Infrastructure Investment Bank materials. Results. Theoretical approaches to the definition of the national currency system and international financial organizations, including its classification, are proposed. It is proved that the IMF makes active impact on national currency policy formation through regulation and supervision, while the World Bank and AIIB are related in a passive way. The IFI regulation trends are to implement floating exchange regime, liberal currency transactions, cancel currency restrictions in member countries. Although it refers to all countries, some of them with large population, trading, underdeveloped institutions of democracy could avoid some IFI pressure. Practical implications. The study accents attention on the specifics of the IFI activity in terms of changing the currency policy of member countries. Comparison of priorities among national currency policy and IFI recommendations could be applicable for national authorities in performing national currency policy. Value/originality. Despite the existing studies in the field of international monetary policy, there is a gap in theoretical definition of interaction between IFI and national monetary authorities in the field of national currency policy forming at present. This article brings new approaches to the IFI classification and approaches to the definition of IFI characteristics in terms of impact on currency policy of member country.

This article analyses the relationships among the unit of account and means of exchange functions of an international currency, on the one hand, and its store of value in official use, on the other hand. Historical evidence links the currency composition of reserves to currency movements. The currency composition of reserves is strongly related in the cross-section to both currency movements and the currency denomination of trade. Data limitations make it hard to distinguish these two factors. A panel analysis of 5 countries from central and Eastern Europe shows that both trade invoicing and currency movements drive changing official reserve composition. Implications are suggested for the prospects for the renminbi enlarging its current small portion of official foreign exchange reserves.

The paper analyses the official use of international currencies as reserve currency (store of value) and anchor currency (unit of account). Examining the role as a reserve currency we note that the US dollar is the main reserve currency even if it recorded a decline given the decrease of the value of the US dollar reserve holdings and the gradual diversification of the currencies used. Since 2010, the euro's share decreased continuously may be due to the Eurozone crisis and the euro's depreciation against the US dollar. Then we show that the US dollar dominates as an anchor currency, though it was temporary abandoned during crisis time, having more than a regional dimension. At the same time, the use of the euro in exchange rate arrangements appears mainly in the regions that have close links with the euro area. Over the last few years, we have witnessed a gentle orientation towards a multimonetary world, especially regarding the use of the international currencies as reserve currency given the diversification of the currencies in which central banks understand to hold international reserves and the increasing share of the nontraditional currencies in total foreign exchange reserves.

The implementation by the People’s Republic of China (PRC) of the measures concerning the development of the sphere and the scale of the international use of its national currency provided the inclusion of the yuan since October 2016 together with the US dollar, euro, pound sterling and Japanese yen into the basket of currencies (Special Drawing Rights). In the article on the basis of the theoretical justification of the necessity of creation of all economic, institutional and organizational conditions of the internationalization of a currency factors that allowed achieving the contemporary level of the international use of the Chinese monetary unit as standard of value, unit of account and reserve currency are analyzed. The reasons contributing to the increase of the international status of the yuan in 2010–2015 are characterized. The determinants impeding the future growth of the demand for the national currency of China from the part of non-residents are discovered.

The International Monetary Fund’s decision in 2015 to add the Renminbi to its Special Drawing Rights currency basket has in effect granted the Chinese Yuan the international reserve currency status. This study revisits China’s five exchange rate regimes in 2005-2015 and investigates the relationships among the currencies of the Chinese Yuan, the U.S. Dollar and the Euro. The Log-Periodic Power Law Singularity model is proposed as a generic parameterization to capture the super-exponential behavior in the tetrad of exchange rates of these currency pairs. The transient non-sustainable faster-than-exponential acceleration of the “CNY against USD” from August 2005 to July 2008 suggests the existence of an apparent bubble with an under-valuation. The clustered signals of LPPLS Confidence indicators for the “CNY against USD” from May 2011 to March 2012 suggest the termination of its long-term growth. The signals for the “EUR against USD” and “CNY against EUR” emerging from January 2014 to August 2015 show a tightly coupled relationship among these currency pairs. Moreover, the empirical estimates of the most possible critical time by the standard Ordinary Least Squares method and the Quantile Regression method for the time series of “CNY against USD” tends to be later than that of “CNY against EUR” in the five regimes.

Статья посвящена вопросу появления китайского юаня в корзине специальных прав заимствования Международного валютного фонда. В статье отражены причины включения юаня МВФ в корзину СПЗ, а также последствия, которые могут иметь место в будущем.

We analyze how the role of different national currencies as international reserves was affected by the shift from fixed to flexible exchange rates. We extend data on the currency composition of foreign reserves backward and forward to investigate whether there was a shift in the determinants of the currency composition of international reserves around the breakdown of Bretton Woods. We find that inertia and policy-credibility effects in international reserve currency choice have become stronger post-Bretton Woods, while network effects appear to have weakened. We show that negative policy interventions designed to discourage international use of a currency have been more effective than positive interventions to encourage its use. These findings speak to the prospects of currencies like the euro and the renminbi seeking to acquire international reserve status and others like the U.S. dollar seeking to preserve it.

Following the global financial crisis (GFC) in 2007, questions have been raised regarding the prospect of the US dollar continuing its dominance as the principal reserve currency. The increased volatility of the US dollar exchange rate and the uncertain sustainability of the US economic growth since that time have created pressure for central banks around the globe to shift their US dollar reserve holdings to other currencies. Amongst the major reserve currencies, the euro has been considered by a number of central banks to be an alternative currency to the US dollar. In light of the above considerations, this paper aims to present an empirical analysis on the different transaction factors that affect the currency composition holding of the reserve currencies held by the central bank of Australia, the Reserve Bank of Australia (RBA).

Advocates of a more pluralistic international monetary and financial system seek to reduce reliance on a single national currency and to bring international liquidity under collective control. One recently revived proposal would transform US dollar official reserves into claims denominated in the IMF's key currency basket, Special Drawing Rights (SDRs). Drawing on new archival evidence and simulations, this article highlights issues that derailed earlier agreement on such an account and shortcomings of design and ambition revealed by subsequent developments. One design issue was account losses if US dollar yields failed to exceed SDR yields enough to offset dollar depreciation. In fact, uncovered interest parity did not hold and could well have left the account persistently insolvent. Another shortcoming was ambition: the proposed account proved simply too small to achieve the desired lowering of the dollar's share of foreign exchange reserves. Any new proposal needs to address these shortcomings.

The collapse of the international monetary system of Bretton Woods ended the period of common use of unified exchange rate system. Current, so-called non-system, is not providing stability in currency relations, which is mainly due to the high volatility of exchange rates. Implementing changes is inevitable. While the unification of exchange rates on an international scale appears to be currently impossible, alike the return to the gold standard, noteworthy is the idea of implementing a global currency, which would be an effective replacement for the US dollar as an international currency. SDRs, based on the rearranged currency basket that include the currencies of developing countries, could successfully play the role of such currency.

Since the Bretton Woods Agreement, the U.S. dollar has played the role of dominant global currency. As a result, the Federal Reserve Bank has many privileges such as the ability to run trade deficits without foreign exchange reserves. In the world, foreign exchange rates of currencies are quoted against the dollar, and majority of currency trading involves the dollar. Besides, international trade in primary commodities, such as oil, wheat, gold and coffee are bought and sold in U.S. dollar. The central banks of countries hold major positions of their international reserves in dollars. Any changes in its interest rates automatically alter the revenues of all world assets. With deregulated financial markets, the spillover effects of the Federal Reserve Bank’s decisions have increased. In this paper, we examine the impacts of Federal Reserve Bank policies over the Fragile Five that is a sub group of the weaker emerging markets namely Brazil, India, Indonesia, South Africa and Turkey. We are mainly focusing on the consequences of changes in Fed’s policies on the fragile five’s basic indicators; exchange rate, interest rate, and the stock exchange indices. All Fragile Five currencies have been depreciated by about 10 to 25% after the Fed tapering decisions. In addition we test for mean and volatility spillover of Wall Street on stock exchange indices of the Fragile Five in GARCH in mean framework and document the existence of such spillovers in almost all cases.

Development of the national monetary system necessitates the ensuring of stability of the national monetary system. This is explained by the fact that the national currency system has a direct impact on the competitiveness of the national economy, on the export potential of the country and the living standard of the population. Appreciation of the real exchange rate would cause the rising of export cost and artificially overvalued exchange rate will provoke the emergence of excessive demand for foreign currencies in the country. Moreover, relatively high devaluation level of national currency would negatively affect the efficiency of financed investment projects. This article analyzes the current state of monetary system of the Republic of Uzbekistan, identifies the current problems and proposes scientific and practical solutions to identified problems. In particular, the author justifies the need for the transfer of all foreign exchange reserves of the state to the balance sheet of the Central Bank with the right to self& governance within the fr amework of monetary policy. Increasing the diversification level of foreign exchange reserves of the Central Bank is proposed by restructuring the currency framework of external debt of the Government of Uzbekistan.

This paper examines whether the international role of the dollar as main global reserve currency has contributed to persistent current account imbalances. To this end, we analyse how central banks' accumulation of reserve assets affects the current account balance of both reserve-accumulating and reserve-providing countries. Based on a simple portfolio balance model we show theoretically that the global demand for reserve assets by central banks may lower the current account balance of the reserve-issuing country. Our panel data analysis over the period 1970–2009 confirms this hypothesis: Any dollar of provided reserve assets decreases the US current account by more than one dollar. On average, the demand for dollar reserves has lowered the US current account by 1–2 percentage points relative to GDP. The flip side of this effect is a higher current account balance in reserve-accumulating countries. These novel findings show that the worldwide demand for international reserves has contributed to the buildup of global imbalances.

Special Drawing Rights (SDRs), the synthetic reserve asset issued by the IMF since the 1970s, have been touted as an alternative to the dollar as the world’s primary reserve asset since 1971 and still receive vocal support today. It is striking, then, that the SDR accounts for a mere 0.5% of world reserves today and are mostly considered an irrelevant oddity. In this essay, I seek to explain the SDR’s failure to catch on using archival evidence from the US National Archives and IMF. I argue that the political compromises necessary to reach agreement on the SDR’s creation left it incapable of playing a major reserve role by design and incapable of adapting to the rapidly changing international monetary system of the 1970s. Further, the national interest of the United States in supporting the dollar’s reserve role and lack of consistent support for the SDR in Europe left it without the political support it needed during 1970s’ reform discussions; even short periods of support were conditioned on alignment w...

The main goal of the paper is to examine the key features of the current international monetary system and provide an overview of scenarios for the future global monetary arrangements. It is noted that just a few years back there seemed to be a bipolar monetary system based on the U.S. dollar and the euro in the making. The rise of China and the possible emergence of the Chinese renminbi as an international currency gave way to a debate on a tripolar monetary system. Today, the future of the international monetary system is still open. It needs reforming in order to meet the requirements of the new global order with multiple growth centers, the growing role of transnational actors, and the increasing global influence of the major emerging economies.The analysis reveals that the relations among the major international currencies are changing, and today at least three scenarios for the future monetary order seem possible. These are the maintenance of the U.S. dollar domination, a shift towards a multipolar currency order, and the gradual regionalization of the currency order. The concept of a single currency – though theoretically attracting – seems impossible to be implemented in the foreseeable future. The analysis is based on monetary and economic theories, historical patterns of the development of monetary regimes, and an extensive literature overview backed by the data provided by the International Monetary Fund (IMF) and the Bank for International Settlements (BIS).

The US dollar gained the status of the world's reserve currency in the Bretton Woods system and has preserved it until the present day. Such position in international finance entails both advantages and disadvantages to the USA as the issuer of this currency, and to the rest of the world using it in trading, as store of value, and for the purpose of various financial operations and transactions. After the collapse of the Bretton Woods system, the regime of fixed FX rates was replaced by floating FX rates. Yet, regardless of this change, the dollar kept its role of the world's reserve currency. Numerous banking and currency crises following the transfer to the floating FX rates regime, along with the shifts in international capital flows, forced the developing countries and countries in transition to increase their FX reserves. In the tendency to store their value, central banks usually invest them into US Treasury securities, as liquid and reliable assets. However, due to the risk incurred by the reliance on a single national currency in the role of the world's reserve currency, there have been many proposals to reform the international monetary system. According to the current global tendencies, the most serious candidates for acquiring the status of the world's reserve currency in the future are the dollar, the euro, and the Chinese yuan.

We empirically investigate whether reserve currency preferences have been a source of stability for the international monetary system. Our findings suggest that reserve-hoarding countries, especially the emerging/developing countries, tend to adopt a stabilizing diversification strategy in their reserve portfolio allocation, buying (selling) assets denominated in depreciated (appreciated) currency. The result is robust to both International Monetary Fund and Bank for International Settlements measures of quantity changes of reserve shares. The stabilizing diversification strategy reveals the fact that reserve-hoarding countries may fall into a "dollar trap," and escaping from it may cause more valuation loss of their existing reserve portfolios.

The international reserve regime based mainly on the US dollar has served the world well for decades, but it faces an uncertain future as the economic hegemony of the United States is increasingly challenged by the emergence of new economic powers. The regime is flawed fundamentally, moreover, because additions to the supply of the main reserve asset require the United States to run balance-of -payments deficits, which tend to undermine confidence in the dollar. This paper proposes a transformation of the reserve regime that would cause Special Drawing Rights (SDRs) issued by the International Monetary Fund to become the main reserve asset. An orderly transition would be achieved by creating a Substitution Account into which official holders of dollars could deposit them in exchange for SDRs.

Internationalization of the renminbi is a stated goal of the Chinese government, its brief flirtation with Special Drawing Rights and an Asian Currency Unit notwithstanding. Chinese officials understand that a dollar-centric international monetary and financial system is a mixed blessing. Doing cross-border business in their own currency confers convenience value and efficiency advantages on United States (US) banks and firms. It frees them from the costs of converting currencies and hedging exchange rate exposures, something that Chinese banks and firms will enjoy only when they are similarly able to conduct international transactions in their home currency. Relying on the dollar for international liquidity and reserves lays the People’s Republic of China (PRC) open to the foibles of US policy, whose downside was made clear by the incipient liquidity shortage that followed the failure of Lehman Bros. in 2008. It exposes the PRC to the risk of capital losses on its foreign security holdings. Renminbi internationalization is part and parcel with Chinese leaders’ efforts to rebalance their economy from investment to consumption, from exports to domestic absorption, and from manufacturing to services, including financial services. This explains why Chinese policy makers have set their sights on “basic capital account convertibility” within five years and on elevating Shanghai to first-class-financial-center status within ten, at which time the renminbi will be a leading international and reserve currency. 1 In earlier writings I staked out a relatively positive position on the prospects for renminbi internationalization. 2 Currency internationalization, appropriately implemented, is in the PRC’s interest. Chinese officials have a carefully calibrated approach, beginning with authorization for domestic and foreign companies to settle their merchandise transactions in the currency, followed by permitting a limited but growing range of financial transactions to be conducted in it, and culminating in the use of the country’s currency in a range of additional financial roles, not least as a form for countries to hold their reserves. This is not unlike the PRC’s incremental

The stabilization programs of the International Monetary Fund (IMF)—which are often designed to prevent currency crashes and promote exchange rate stability—frequently fail to prevent currency crises in program-recipient developing countries. This leads to the following puzzle: when do IMF programs fail to prevent currency crises in developing states that turn to the Fund for assistance? We suggest that the likelihood that a currency crisis may occur under an IMF program depends on the market concentration of public sector banks in program-participating developing countries: the higher the market concentration of public banks in a program recipient nation, the more likely that the IMF program will be associated with a currency crisis. Specifically, if the market concentration of public banks in a program-participating developing country is high, then banks will compel the government to renege on its commitment to implement banking sector reforms. This induces a financial panic among investors that leads t...

Objectives: The research is aimed at extending the holistic theoretical concept of genesis and development of the global foreign exchange market. It also presents guidelines to reorganize the world monetary system, as well as a rationale for the author’s view of a place and a role of gold on the today’s world currency market (in terms of uncertainty). Methods/ Analysis: Considering the methodological issues within the examined problem, the authors were supported by principles of the modern economic theory. The research was based on the system analysis; specific problems were solved with the help of the comparative, statistical and graphical analyses, using ranking and clustering methods. Results: The paper has presented an analysis for the current situation with the reserve currency, the US dollar, and given ideas of its possible reorientation towards gold as a more stable reserve asset in the global financial and currency markets. The authors have concluded that in the current conditions in the global foreign exchange market, there is no alternative to the existing reserve currency, the US dollar, but there is an opportunity to return the gold or e-gold as a reserve currency or a currency unit of account as a basic element within the global monetary system. Novelty/Improvements: There are the authors’ views on the current state of gold in the world and national monetary systems; the possibility has been proven to return the functions of the world’s money and a single international payment instrument to gold.

In the Bretton-Woods era the controversy over cross-border use of national monies turned on how to create ‘symmetries’ and avoid significant ‘asymmetries’ in the way national currencies shared specific international currency functions. We examine the twentieth-century work of prominent economists on the nature, choice, and functions of international currencies. Prescriptive approaches to international currency formation are considered, beginning with the discussion of the Bretton-Woods plans, followed by doctrinal developments stimulated by the collapse of the Bretton-Woods system. Why are those developments instructive given recent revisitation of the currency internationalisation question in modern international monetary thought and policy? The modern revival of this question resembles a rehabilitation and restatement of earlier controversies though it underestimates the gradual encroachment of the idea of international currency competition. This idea came to dominate other doctrines from the 1970s; it accommodates the ongoing adaptation of national currencies to the full range of international currency functions.

The flexible exchange rate experiment has been a failure. The best test of any monetary system is the degree to which it avoids unnecessary changes in real exchange rates. These changes drastically reduce the gains from trade and disqualify the arguments ordinarily made for free trade areas and the customs unions. By this criterion, the worst period in history has been the period since generalized floating that began in 1973. All of the arguments made for flexible exchange rates have proved to be incorrect. Destabilizing capital movements have rocked the exchange rates between areas that have a high and consistent degree of price stability. Exchange rates consistently overshoot equilibrium, causing harmful shifts between traded and non-traded goods industries and in the levels of indebtedness of rich and poor countries. The dollar–euro exchange rate, first dropping by a large percentage and then rising by an even larger percentage over the past 20 years, between areas that have price stability, is sufficient proof that the markets are not working in a direction and degree that is conducive to economic welfare. The solution lies in creating an international currency that can be used by all countries for international trade purposes. A two-step process is envisaged: First, a convergence of the three or four major currency areas on a common unit of account, called the “DEY” for dollar–euro–yen or dollar–euro–yuan, with a joint Monetary Policy Council to determine monetary policy of the area. Countries could start with large margins and gradually reduce them to complete convergence. Second, the Board of Governors of the IMF (or its replacement) designate the DEY as the platform on which, in conjunction possibly with gold, it will build the new world currency, to be called the INTOR. Both the Keynes and White Plans called for a world currency. Political conditions were not ripe for its inclusion in the Articles of Agreement and that is one of the reasons why the great post-war monetary experiment of the fixed-exchange-rate international system broke down.” Since the creation of the euro, the political configuration of the international monetary system has changed and the United States is no longer the unquestioned “dictator”. It is now very much in America's interest, as well as the interests of the EU, Japan and China, to restore a new international monetary system that would be to the economic benefit of all countries.

Barry J. Eichengreen. Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System. New York: Oxford University Press, 2011. Eric Helleiner and Jonathan...

Chey, Hyoung-kyu. (2012) Theories of International Currencies and the Future of the World Monetary Order. International Studies Review, doi: 10.1111/j.1468-2486.2012.01104.x The international standings of currencies form a principal characteristic of the international monetary order, shaping the world economic and political system by influencing the economic and political relationships among countries. This paper provides a systematic review of the literature on international currencies, encompassing both economics and political science, with the aim of providing useful groundwork to help develop a better analytical framework for the study of international currency standing. In particular, this paper discusses the international currency concept, the benefits and costs of issuing an international currency, and the determinants of international currency standing. It also assesses conflicting prospects for the future of the US dollar as the world’s key currency, addressing the likelihoods of further internationalization of the euro and the renminbi, the dollar’s main potential rivals. It in addition calls attention to certain political economy factors as salient issues for the future study of international currency standing.

The modern international monetary system has a number of flaws and therefore needs cardinal change. Hence, economists from all over the world are suggesting alternative international currencies that would make the international monetary system more efficient. However, it is essential when approaching the creation of a new international currency to analyze and take into account the experience of all the past international currencies. Therefore this paper begins with an exploration of the drawbacks of each of the past and present international currencies. Drawing on this analysis a justification will be made for the necessity of introducing a new international currency, pointing to the requirements it should meet. Further on, this paper proposes an alternative theoretically possible variant of the international currency, with a fixed value relative to a commodity basket. An abstract example is used to demonstrate its composition and circulation mechanism.

The article deals with the world functioning from the view of the hegemonic stability theory, which proposes that open international systems are connected with a dominant state existence, and possibly its post-hegemonic functioning in the form of country co-operation. The question is demonstrated on the example of the US dollar performing the role of the key world currency in both private and official use at present: it prevails in foreign currency transactions, in international reserves, in overseas bank deposits and loans, etc. Problems of the global economy, especially global imbalances, have led to suggestions by China, other countries and the International Monetary Fund to reform the global monetary order. These suggestions have taken the form of a multi-polar system of more currencies belonging to the economically most important countries (dollar zone, euro zone, Asian currency zone). Other suggestions include a system based on Special Drawing Rights, where a change ought to be made in the basket currencies adequately to the world economic situation, and a system of creating a new global currency. The advantages of a new global currency would be especially no connection to national economy developments, higher stability and no risk on assets denominated in this currency due to the highest rating. It is discussed which attitudes of the main countries such as the USA, BRIC and others could be possible in the view of the theories mentioned.

We analytically derive optimal central bank portfolios in a minimum variance framework with two assets and transaction demands caused by sudden stops in capital inflows. In this model, transaction demands become less important relative to traditional portfolio objectives as debt to reserve ratios decrease. We empirically estimate optimal dollar and euro shares for 23 emerging market countries and find that optimal reserve portfolios are dominated by anchor currencies and, at current debt-to-reserve ratios, introducing transaction demand has a relatively modest effect for most countries. We find that, in general, the dollar acts as a safe haven currency during sudden stops for country specific and global sudden stops, increasing the optimal share of dollar bonds in central bank portfolios. Correspondingly, our model predicts that dollar shares should decline as debt-to-reserve ratios fall, as observed in recent data. We also find that the denomination of foreign currency debt has little importance for optimal reserve portfolios.

The recent financial crisis highlighted some of the underlying defects in the dollar-based reserve system. This paper argues that the era of the US hegemonic stability and unipolarity, which provided the foundation for the dollar¡¯s sustenance as the pre-eminent global reserve currency, has already peaked and the global economy of the future will revolve around a multipolar order. The rise of China, along with other emerging markets, is rapidly redrawing the traditional Western dominated global economic system. The structural challenges facing the American economy along with the extraordinary expansion of Federal Reserve¡¯s balance sheet and the explosion of the US government debt will diminish the attractiveness of the dollar standard going forward. Our analysis suggests that a tripolar currency order¡ªconsisting of the dollar, the yuan and the euro¡ªwill replace the dollar standard in the coming decades.