I took a deep dive into the history of the idea of global reserve currency in the podcast this week. This episode was provoked by the outcry in America about other nations that showed the audacity to trade in their own national currencies rather than the US dollar.
I relied heavily on Adam Tooze, Crashed and The Deluge in making this episode, and also drew on John Darwin, After Tamerlane and Niall Ferguson, The Ascent of Money. There were a bunch of articles from the IMF and various business newspapers that I also consulted.
It intrigued me how much the idea of the multipolar world has been around. French President Sarkozy spoke of the multipolar world in 2008 in relation to the global financial crisis, and called for reforms to global institutions, including currency systems.
I also quoted on the podcast a brief phrase from the 2009 paper by the Governor of the Bank of China, Zhou Xiaochan. He referred to the unique historical circumstances that established the $US dollar as the global reserve currency, and the need to rethink the system. The fuller quotation from his statement is
“The outbreak of the current crisis and its spillover in the world have confronted us with a long-existing but still unanswered question, i.e., what kind of international reserve currency do we need to secure global financial stability and facilitate world economic growth, which was one of the purposes for establishing the IMF?
“ The acceptance of credit-based national currencies as major international reserve currencies, as is the case in the current system, is a rare special case in history. The crisis again calls for creative reform of the existing international monetary system towards an international reserve currency with a stable value, rule-based issuance and manageable supply, so as to achieve the objective of safeguarding global economic and financial stability.
That proposal for a multinational reserve currency system was taken up by the 2010 UN Conference on Trade and Development. But the US fought off the proposals tooth and nail, with the last three Presidents working to protect US hegemony. Nobel Peace Prize Winner Obama pursued an America First policy. What’s more he increased the use of economic sanctions and the reserve currency as weapons of economic war. Trump escalated the trade war, with China, regardless of fears of the mutually assured destruction, or the balance of financial terror. Then Biden unleashed the dogs of economic war on Russia, raided the Russian central bank and destroyed global trust in the Western rules based order of finance.
So we are in the place we are today. Let us hope our current circumstances lead to the return of the global monetary system, just like the international order, to its natural multipolar state.
https://open.spotify.com/embed/show/2V2Hi897U6mAOPwJuWu00c?utm_source=generator
I worked in the Obama administration at a mid-level position dealing with international trade. I don’t recall fighting the attempt at destablizing the dollar tooth & nail at all, I recall bemusement by the attempt. Let’s be blunt, it was Putin’s anti-Westernism that was the driver at that time.
Putin’s failure & the BRIC’s somewhat half-hearted support was doomed to failure. Reserve currency isn’t just about the US ‘controlling’ some back room shenanigans it’s about stabilizing your monetary wealth if you’re a large money holder. Russia, Brazil, the PRC, India etc aren’t places people want to store their money safely. It’s bad enough that in the West you have financial strains like 2008 but the alternatives to storing your money in BRICs are a lot more unstable.
IOW even if you paid for oil in yuan both sides will eventually convert their cash to the dollar or Euro. Again as bad as Western financial meltdowns have been they are substantially more transparent than investment in China, Russia, etc. Just as important are the legal structures in place to protect assets which frankly aren’t as trusted in those countries (again even with a nod to our ‘issues’).
As for Biden raid on Putin’s Russia & the ‘stability’ of the rules finance? I’m unmoved by an argument that avoids mentioning the cause; the disruption of European peace, the attack on Ukrainian sovereignty & the unapologetic irredentism drenched in Ukrainian blood that Putin started.
Fair points. Have you read Adam Tooze’s book, Crashed?