What international monetary system for a fast-changing world economy?
Prepared for AEEF Conference, Paris, 10-11 January 2011
Agnès Bénassy-Quéré (CEPII) and Jean Pisani-Ferry (Bruegel)
3 January 2011
"Though the renminbi is not yet convertible, the international monetary regime has already started to move away from a 'hegemonic' system centred around the US dollar. It is likely to move towards a 'multipolar' system, with the dollar, the Chinese currency and the euro as its key pillars. This shift corresponds to the long-term evolution of the balance of economic weight in the world economy. Such an evolution may mitigate some flaws of the present (non-) system, such as the Triffin dilemma or the asymmetry of adjustments. However it may exacerbate other problems, such as short-run exchange rate volatility or the scope for ‘currency wars’, while leaving key questions, such as global liquidity provision, unresolved. Hence, in itself, a multipolar regime can be both the best and the worst of all regimes. Which of these alternatives will materialise depends on the degree of cooperation within a multilateral framework.
Such cooperation should target monetary policies and global liquidity rather than nominal exchange rates. The strength of international cooperation and multilateral surveillance will be even more needed during the (long) transition towards a multipolar system, which will involve specific risks such as abrupt reserve diversification, liquidity shortages, or persistent imbalances. These risks will be mitigated by the strategy of China to gradually internationalise its currency, but enhanced surveillance will also be needed..."
"...This regime can alternatively be characterised as multipolar or unipolar. Some authors (for example Rose, 2006) claim that what has emerged from the ashes of the Bretton Woods order is a system in which there is “no role for a centre country, the IMF, or gold”, but in which a growing number of advanced and emerging countries have adopted some form of inflation targeting and float independently. But others (for example Padoa Schioppa, 2010, or, implicitly, Zhou Xiaochuan, 2009) see the current international monetary regime as one that gives a central role, and privileges, to the US as the country issuing the main international currency. Others again (for example Dooley, Folkerts Landau and Garber, 2003) claim that part of the world has moved to a floating regime of the sort described by Rose while another part lives under a revived Bretton Woods regime centred on the US dollar, which leads Aglietta (2010) to call it a semi-dollar standard..."