The global financial crisis and the growing importance of emerging market economies have made it more likely that the International Monetary System (IMS) will evolve in a direction in which the US Dollar, and the United States more generally, have a smaller role than at present. But what shape will the IMS take, and how will responsibility for global economic management and stability unfold in a world with perhaps three or more key currencies?
Answering this question requires examining a number of aspects of the functioning of the IMS. An important issue is China’s further integration into the global economy, and, in particular, how it manages the emergence of the RMB as an important international currency. Although the Chinese authorities are proceeding apace with its internationalization, it is unclear at present the extent to which they intend to move to full capital account convertibility and exchange rate flexibility in support of the RMB becoming a reserve currency. While progress along this path will be for the Chinese to realize, it will entail an interaction between private and public decision-making, and be a function of private sector confidence as much as public policy.
The future of the euro is another important issue for the functioning of the IMS. A consensus seems to be emerging that monetary union may only be sustainable if accompanied by both a banking and fiscal union. Moving forward on these fronts will require a shift of sovereignty from the nation-states towards the centre. In the case of the yen, its future role as a reserve currency is currently caught up in the macroeconomic policy shifts now underway in Japan.
Another issue is the governance of the IMS and the need for a framework for international policy cooperation to help manage the global economy in a manner beneficial to all. We need to strengthen our understanding of interdependencies and externalities in order to improve the understanding of how cooperative action can enhance the likelihood of achieving both domestic and international policy objectives.
The goal of our London workshop is to have an open and comprehensive discussion of these issues. Our ultimate goal is to publish a joint CIGI, Chatham House, INET report in early 2014 that would contribute to the understanding, discussions and policy debates on these important issues.
Paul Jenkins is a CIGI distinguished fellow. He contributes expertise on international policy coordination and financial stability, with a particular interest in the Group of Twenty. Previously he served as senior deputy governor of the Bank of Canada.