We propose a simple model of the international monetary system. We study the world supply and demand for reserve assets denominated in different currencies under a variety of scenarios: a hegemon ...versus a multipolar world; abundant versus scarce reserve assets; and a gold exchange standard versus a floating rate system. We rationalize the Triffin dilemma, which posits the fundamental instability of the system, as well as the common prediction regarding the natural and beneficial emergence of a multipolar world, the Nurkse warning that a multipolar world is more unstable than a hegemon world, and the Keynesian argument that a scarcity of reserve assets under a gold standard or at the zero lower bound is recessionary. Our analysis is both positive and normative.
•Countries that issue internationally acceptable currencies tend to have lower interest rates and higher price levels than those whose currencies are not internationally acceptable.•Differences in ...interest rates and price levels are likely to cause asymmetric transfers of biophysical resources from low-income to high-income countries.•Currency hierarchy can be empirically operationalized as a categorical variable based on the liquidity of currencies and the degree of monetary sovereignty of their issuers.•Ecologically unequal exchange is driven not only by diverging monetary compensation for exported resources, but also by the impact of currency hierarchy on countries’ trade balances.•Alternative explanations for the empirical correlations between currency hierarchy, interest rates, price levels, and ecologically unequal exchange have theoretically and empirically limited.
Asymmetric transfers of biophysical resources from the Global South to the North are a key obstacle to sustainable development. The underlying causal drivers of this ‘ecologically unequal exchange’ are not well understood. This paper accounts for the causal role of hierarchy between currencies as one driver of ecologically unequal exchange. Drawing on dependency theory, I propose testable hypotheses that explain why countries that issue internationally acceptable currencies create net inflows of embodied labour, land, energy, raw materials, and carbon from countries whose currencies lack international acceptability: Countries with lower-ranking currencies face higher interest rates, which constrain their policy space, drive income outflows, and necessitate resource exports. Such countries also tend to have lower price levels (measured as the ratio between exchange rates and purchasing power parity rates) because their currencies are not demanded internationally, resulting in reduced dollar income per exported resource. To test these hypotheses, I use a novel categorical operationalization of currency hierarchy. I compare different observable correlations to the theoretical correlations implied by the proposed hypotheses, and test multiple regression models against cross-country data. Overall, the results are consistent with the hypotheses. Considering alternative explanations, the conclusion seems justified that currency hierarchy is a significant driver of ecologically unequal exchange, and that this mechanism operates specifically through cross-country divergences in interest rates and exchange rates. In short, the monetary cost of a dollar impacts the biophysical cost of a dollar.
Abstract Stablecoins are second generation cryptocurrencies, aimed at maintaining their value stable with respect to official currencies. The most famous example is perhaps represented by libra, the ...cryptocurrency announced by Facebook in 2019 and yet to be issued; the most widespread is tether, with a market capitalization of almost 10 billion dollars and a daily transaction volume of almost 50 billion dollars, which makes it the most used cryptocurrency. The diffusion of stablecoins is hardly surprising. By minimizing volatility – the main flaw of first generation cryptocurrencies, including bitcoin –, stablecoins are expected to play an even more important role on a global scale within a few years. Our contribution deals not with the economic, but specifically with the geopolitical factors that could foster the use of stablecoins for strategic and military purposes. In particular, we focus on how such payment instruments, together with other alternative electronic payment systems, could be used as a means to circumvent economic sanctions and ultimately as a challenge to the hegemony of the US dollar in the international monetary system.
Network effect and international currency Liu, Tao; Wang, Xiaosong; Woo, Wing Thye
The Scandinavian journal of economics,
July 2024, Volume:
126, Issue:
3
Journal Article
Peer reviewed
The network effect is an important factor for the inertia and path dependence in the international monetary system. In this paper, we explore its influence, both theoretically and empirically: (a) by ...extending the standard monetary search model to a three‐country three‐currency model with multiple transitions to clarify the network effect on currency choices; (b) by showing empirically that the network effect is positive, statistically significant, and quantitatively comparable with other factors, such as trade share. The empirical results hold both for major international currencies and emerging currencies, such as RMB, and for various estimation specifications and subsamples.
This Element argues that governments allocate adjustment burdens strategically to protect their supporters, imposing adjustment costs upon the supporters of their opponents, who then protest in ...response. Using large-N micro-level survey data from three world regions and a global survey, it discusses the local political economy of International Monetary Fund (IMF) lending. It finds that opposition supporters in countries under IMF structural adjustment programs (SAP) are more likely to report that the IMF SAP increased economic hardships than government supporters and countries without IMF exposure. In addition, it finds that partisan gaps in IMF SAP evaluations widen in IMF program countries with an above-median number of conditions, suggesting that opposition supporters face heavier adjustment burdens, and that opposition supporters who think SAPs made their lives worse are more likely to protest.
•We examine the open-economy implications of the introduction of a central bank digital currency (CBDC).•We analyze the international transmission of standard monetary policy and technology shocks in ...the presence and absence of a CDBC.•The presence of a CBDC amplifies the international spill-overs of shocks to a significant extent.•The magnitude of these effects depends crucially on CBDC design•Domestic issuance of a CBDC increases asymmetries in the international monetary system.
A two-country DSGE model with central bank digital currency (CBDC) is derived and used to analyze the open-economy implications of CBDC for the transmission of shocks, optimal monetary policy and welfare. The presence of a CBDC amplifies the international spillovers of shocks and increases international linkages. The magnitude of the effects depends crucially on the design of CBDC. Moreover, issuance of a CBDC by one economy increases asymmetries in the international monetary system by reducing monetary policy autonomy and welfare in the other economy.
The concept of 'new' state capitalism has garnered increasing attention among scholars due to the emergence of a polymorphism of state interventions in recent years. These interventions are now being ...examined through a spatial lens, departing from the previously dominant methodological nationalism. In this case, the 'new' Chinese state capitalism is particularly noteworthy. The People's Republic of China (PRC) has adopted a spatial state-led strategy to facilitate the Renminbi (RMB) transnationalization. This strategic approach transcends traditional national boundaries, stretching across different spaces. Our research focuses on the specific case of Luxembourg in relation to this spatial strategy. We assert that the RMB transnationalization represents a distinctive feature of the 'new' Chinese state capitalism, as it is underpinned by explicit Chinese state policies, unlike other currencies whose global use was the result of growing economies. Moreover, we contend that the PRC's explicit policies regarding the RMB do not aim for full convertibility and widespread acceptance like the US-Dollar (USD). Instead, they prioritise its role as a trade currency for international trade settlements, as the main goal is to reduce the dependence on the USD and to create a stable International Monetary System (IMS) that will bring benefits to its trade-oriented economic model. Overall, this paper significantly contributes to the existing literature by offering a novel perspective on the RMB transnationalization within the framework of the 'new' Chinese state capitalism, emphasising China's quest for autonomy from the USD.
This paper analyses the recent changes in financial practices and relations in emerging capitalist economies (ECEs) using the example of Brazil. It argues that in ECEs these financial ...transformations, akin to the financialisation phenomena observed in Core Capitalist Economies (CCEs), are fundamentally shaped by their subordinated integration into a financialised and structured world economy. To analyse this subordinated financialisation, the paper draws on the framework of international currency hierarchies. It shows by means of two specific processes how the existence of a hierarchic international monetary system has changed the financial behaviour of domestic economic agents, and with it the structure of the financial system. The first process highlights the phenomenon of reserve accumulation and the changing behaviour of domestic banks. The second points to ECEs' sustained external vulnerability and its impact on the operations of Brazilian non-financial corporations. The paper also shows that not only were these financial transformations shaped by ECEs' subordinated financial integration, but also that it was these financialisation tendencies themselves which contributed to cementing existing hierarchies and further deepened existing asymmetries between ECEs and CCEs.
International currencies fulfill different roles in the world economy, with important synergies across those roles. We explore the implications of currency hegemony for the external balance sheet of ...the United States, the process of international adjustment, and the predictability of the US dollar exchange rate. We emphasize the importance of international monetary spillovers and of the exorbitant privilege, and we analyze the emergence of a new Triffin dilemma.
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