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 renminbi (RMB) as an important international currency. In this regard, although the Chinese authorities are proceeding apace with its internationalization, it is unclear, at present, the extent to which they intend to go to full capital account convertibility and exchange rate flexibility, as is the case for the dollar and euro, 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 fork in the road for the IMS. A consensus seems to be emerging that monetary union may only be sustainable if accompanied by fiscal federalism and political union. In the case of the yen, its role as a reserve currency never seemed to live up to expectations.
Another issue is the governance of the IMS and the need for a framework for international policy cooperation. We need to strengthen our understanding of interdependencies and externalities in order to better understand how cooperative action can enhance the likelihood of achieving both domestic and international objectives. More attention, for example, must be given to the global implications of monetary and fiscal policies, especially among systemically important countries.
The goal of this workshop is to delve into these issues in an open and comprehensive manner.
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.
Thomas A. Bernes is a CIGI distinguished fellow. After an illustrious career in the Canadian public service and at leading international economic institutions, Tom was CIGI’s executive director from 2009 to 2012.