The U.S.-Led Monetary Order in a Time of Turbulence, Focus of New Anthology

Foreign Affairs’ latest anthology examines whether the geopolitics of finance has shifted over the last decade in the face of the near collapse of the world’s banking systems and the rise of populist and nationalist challenges to the status quo.

“What might be the fault lines in the financial world that could precipitate another crisis, and possible realignments, in the global monetary order?” ask Brown University Professor Mark Blyth and Providence College School of Business Dean Sylvia Maxfield in their introduction to the special issue.

“Although our analysis suggests more stability than the volatility of the daily news flow would suggest, we should not forget the ‘tail risk’ that such systems generate,” the authors conclude. “Indeed, it’s often in moments where we are most sure things are solid that they sometimes ‘melt into air.’”

Contributors to this special issue have identified potential weaknesses of our current financial system and whether or not there are alternatives to replace it:

Bring Politics Back to Monetary Policy” by University of Ottawa Professor Jacqueline Best: “Central banks play a paradoxical role in today’s liberal democracies. Their work is highly technical, yet the consequences of their actions are inevitably political, producing big winners and losers. They wield great power in democratic societies, and yet they are unelected—because of the fear that politicians tend to push up inflation to appease their bases unless interest rate policy is insulated from democratic pressures.”

Trump and the Bond Market” by City University of London Lecturer Sandy Brian Hager: “A mass exodus from the U.S. Treasuries market is unlikely, both because the United States remains the most relatively safe investment option in a perilous world and because Trump’s policies will entrench the power of the superrich owners of Treasuries. . . . Perhaps the main lesson for the holders of U.S. Treasuries is that the inertia in the global financial system is strong—even in the face of a change like Trump.”

The Euro in Decline?” by Georgetown University Professor Kathleen R. McNamara: “The EU has, in large part, played a ‘helper’ role in U.S. financial hegemony throughout the postwar era to today. But now, Europe’s ‘helper’ status may well be in question. The populist forces that have emerged throughout the continent challenge the legitimacy of the euro and threaten both the institutional and ideational foundations upon which it rests.”

How the Eurozone Might Split”by Brown University Professor Mark Blyth and Tony Blair Institute Chief Economist Simon Tilford: “In all likelihood, if a single country was to call a referendum on its membership in the eurozone, it would destabilize the power relationships that underpin the EU. This would be a tragedy. . . . It is also all but impossible to dismantle the eurozone without imperiling the EU and, with it, political stability in Europe. . . . If that happens, Germany’s likely inability to play the role of regional hegemon would make the U.S. dollar ever more indispensable and the U.S. economy still more central to the global one.”

Can China Internationalize the RMB?” by University of Southern California Associate Professor Saori N. Katada: “The jury is still out on whether the Chinese renminbi (RMB) will displace the U.S. dollar in the foreseeable future. What is clear, however, is that challenging a hegemonic currency is not simple. For the RMB to eventually reign supreme, not only would the Chinese leadership, particularly the country’s monetary authority, need the political will to prioritize the internationalization of its currency over concerns with domestic stability, it would also have to gain the support of the financial markets and other economic and political players. All that is easier said than done.”

China and the International Monetary System” by University of Waterloo Associate Professor Hongying Wang: “Since the late 1990s, another identity has gradually taken hold in the Chinese imagination: that of a major power. . . . Joining the [synthetic IMF-backed currency Special Drawing Right] SDR basket may have involved financial risks, but it also promised an intangible reward in the form of international prestige. . . . Beijing’s SDR policy has been more about affirming China’s national identity than about advancing its material interests.”

The full anthology contains seven selections. If you are interested in receiving guest links or in interviewing editors or authors, please contact Zachary Hastings Hooper, 202.531.2512 or zhh@caliboguecomms.com.

 

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