THE INTERNATIONAL MONETARY SYSTEM IN FLUX: OVERVIEW AND PROSPECTS
THE INTERNATIONAL MONETARY SYSTEM IN FLUX: OVERVIEW AND PROSPECTS

Author(s): Pedro Bação, António Portugal Duarte, Mariana Simões
Subject(s): Economy, Supranational / Global Economy, Business Economy / Management
Published by: ASERS Publishing
Keywords: currency war; euro; financial crisis; International Monetary System; exchange rate misalignments
Summary/Abstract: This chapter analyses the architecture of the International Monetary System (IMS) and the role of reserve currencies in it. We begin by describing the evolution of the IMS from the Gold Standard to the Bretton Woods system and the European integration process that led to the creation of the euro. We then discuss the role played by the euro in the IMS as an international reserve currency. Drawing on econometric estimations, we extrapolate the evolution of the shares in international reserves of the euro, the US dollar and the renminbi. In the discussion, we take into account the current sovereign debt crisis and the possibility of a currency war taking place as a result of the reportedly excessive undervaluation of the renminbi and of the expansionist monetary policies undertaken in several advanced economies, namely in the USA. The text ends with a review of proposals for reducing the likelihood of currency wars, which may disrupt the functioning of the current IMS.

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