"Is the international monetary system tripolar – with the US dollar, the euro, and the Chinese renminbi at each corner? This column presents empirical evidence to suggest that the renminbi is already well on its way to being the dominant currency in Asia.
The 2007–08 global financial crisis has brought the reform of the international monetary system back to the forefront of the international policy debate. Some G20 leaders, notably from emerging economies, are questioning the configuration of the current system based on a single currency, the US dollar, as global reference currency, and the euro, as a more regional currency. Not only was the US the origin of the financial crisis, and Europe the first continent to be engulfed in the subsequent sovereign debt crises, but many link the global financial crisis to the US dollar’s dominant role, to the ‘exorbitant privilege’ it gives to the US (see eg Gourinchas and Rey 2007, Curcuru et al 2008) and ensuing lack of policy discipline, and to the negative global externalities it creates.
A multipolar international monetary system is deemed by many as a distant prospect (see eg Kenen 2011), but others expect it to unfold soon as a natural outcome of the emergence of Asia as the world economy’s powerhouse (see eg Eichengreen 2009 and 2010). As the story goes, the Chinese renminbi may emerge as a truly global currency, along with the euro, while the US dollar would lose its dominant status.
In recent research (Fratzscher and Mehl 2011) we assess to what extent a tripolar international monetary system has already emerged along with its implications for the global economy and financial markets. We test what we call ‘China’s dominance hypothesis’, ie whether the renminbi is already the dominant currency in Asia, exerting a large influence on exchange rate and monetary policies in the region, as much as China exerts a large influence on its neighbours through the well-known ‘Asian production chain’ or ‘Asian supply chain’..."
at http://www.voxeu.org/index.php?q=node/7421
The 2007–08 global financial crisis has brought the reform of the international monetary system back to the forefront of the international policy debate. Some G20 leaders, notably from emerging economies, are questioning the configuration of the current system based on a single currency, the US dollar, as global reference currency, and the euro, as a more regional currency. Not only was the US the origin of the financial crisis, and Europe the first continent to be engulfed in the subsequent sovereign debt crises, but many link the global financial crisis to the US dollar’s dominant role, to the ‘exorbitant privilege’ it gives to the US (see eg Gourinchas and Rey 2007, Curcuru et al 2008) and ensuing lack of policy discipline, and to the negative global externalities it creates.
A multipolar international monetary system is deemed by many as a distant prospect (see eg Kenen 2011), but others expect it to unfold soon as a natural outcome of the emergence of Asia as the world economy’s powerhouse (see eg Eichengreen 2009 and 2010). As the story goes, the Chinese renminbi may emerge as a truly global currency, along with the euro, while the US dollar would lose its dominant status.
In recent research (Fratzscher and Mehl 2011) we assess to what extent a tripolar international monetary system has already emerged along with its implications for the global economy and financial markets. We test what we call ‘China’s dominance hypothesis’, ie whether the renminbi is already the dominant currency in Asia, exerting a large influence on exchange rate and monetary policies in the region, as much as China exerts a large influence on its neighbours through the well-known ‘Asian production chain’ or ‘Asian supply chain’..."
at http://www.voxeu.org/index.php?q=node/7421
