The BRICS and Asia, Currency Internationalization and International Monetary Reform

About the series

In December 2012, the Asian Development Bank, CIGI and the Hong Kong Institute for Monetary Research co-hosted a conference in Hong Kong, China. The papers in this series, authored by esteemed academic and policy experts, were presented at the conference and were subsequently revised. These working papers are being published simultaneously by all three partners.

In the Series

This paper analyzes the discussion of a substitution account in the 1970s and how the account might have performed had it been agreed in 1980. The substitution account would have allowed central banks to diversify away from the dollar into the IMF’s Special Drawing Right, comprised of US dollar, Deutschmark, French franc (later euro), Japanese yen and British pound, through transactions conducted off the market.
This paper focusses on the use of a currency to denominate liabilities such as loans or bonds — more precisely, the value of being able to issue debt externally in one’s own local currency. It considers, in particular, the countries of Latin America and the Caribbean, arguing that global currency markets remain dominated by the US dollar and a very few other global currencies.
The focus in this paper is on the international reserve currency dispensation that could best serve the world.
In particular, aspects of South Africa’s experience with exchange rate reform, currency internationalization
and monetary integration are highlighted in an attempt to extract elements that may be of relevance to reform the international monetary system.
What is the future of the US dollar’s role as the world’s key currency? The future of international money will be determined not only by markets but also by public policy choices, in particular the choices of the United States and other leading economic powers to encourage or discourage an international role for their respective currencies.
The renminbi trade settlement scheme piloted between the People’s Republic of China and Hong Kong, China demonstrated that the existence of appropriate financial infrastructure could reduce the relatively larger costs of bilateral currency transactions compared with triangular transactions through the US dollar. This paper proposes that extending the trade settlement scheme to the rest of Asia and appending a government bond payment and securities settlement system could be a practical solution to international monetary system reform and the diversification of settlement currencies.
Nearly half a decade after the start of the global economic crisis, the international monetary system remains in turmoil. This working paper provides a broad overview of challenges facing the monetary system today, with particular emphasis on problems most directly relevant to the interests of the BRICS (Brazil, Russian Federation, India, [People’s Republic of] China and South Africa) and Asian nations.