Currency & Power

IMF Blog, August 16, 2016

Source details

Publication: iMFdirect
Date: August 16, 2016
Theme: Political economy; the relationship between world currencies and State power.
Central question: We have a global economy, but we don't have a global currency. Or do we?

Power defined: "Power is influence, and it is also the ability to do what you want without having to worry about what others want," according to Benjamin Cohen.
Primary driver of a dominant currency: The dominance of the issuer's economy. "The United States dollar has been a dominant currency because the U.S. economy has dominated since World War II."
Financial-market attributes: "What makes the dollar attractive, according to Cohen, is the U.S. financial market. The dollar offers liquidity advantages that no other does."

Cohen's concept: a "currency pyramid" with the U.S. dollar at the very peak; it "has universal scope and domain."
Renminbi/yuan status: "Potentially the renminbi, China's currency (also known as the yuan), which is still just a minnow, according to Cohen, but it's international use is growing quite rapidly."
Political dimension: Renminbi's growing international use "reflects that China has achieved a degree of autonomy that's almost unprecedented."

World currency feasibility: "Some people would like one world currency, which would come with a great deal of power. Cohen does not believe a world currency is possible in today's world."
Best attainable outcome: Institutions can help. "The best we can hope for is for institutions like the IMF to help governments to manage their currencies more efficiently."
Structural constraint: "As long as we have a political system that relies on state sovereignty, we're going to live with an imperfect monetary system, and the best we can hope for is international institutions that can help smooth some of the rough edges."

Format: Interview podcast with Benjamin Cohen, professor of International Political Economy at the University of California.
Topic coverage: Why currencies become internationalized; the relationship between world currencies and State power.
Listening: Episode embedded via SoundCloud (track id referenced in source).

Source: IMF iMFdirect, "Currency & Power", August 16, 2016