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RELUCTANT MONETARY LEADERS? THE NEW POLITICS OF INTERNATIONAL CURRENCIES

RELUCTANT MONETARY LEADERS? THE NEW POLITICS OF INTERNATIONAL CURRENCIES. Eric Helleiner University of Waterloo December 2012. Some conventional wisdom. The rise and fall of international currencies is a market-driven process Issuing an international currency is an exhorbitant privilege

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RELUCTANT MONETARY LEADERS? THE NEW POLITICS OF INTERNATIONAL CURRENCIES

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  1. RELUCTANT MONETARY LEADERS? THE NEW POLITICS OF INTERNATIONAL CURRENCIES Eric Helleiner University of Waterloo December 2012

  2. Some conventional wisdom • The rise and fall of international currencies is a market-driven process • Issuing an international currency is an exhorbitant privilege • We are heading towards a competitive struggle for currency leadership

  3. Is the rise and fall of ICs a market-driven process? T • Economic determinants: confidence, liquidity, size • The role of public policy • Indirect and direct roles: “Top” vs. “Negotiated” currencies

  4. Is international currency issuance an exhorbitant privilege? Benefits? • Seigniorage • Denomination Rents • Lower transaction costs • Macroeconomic autonomy • Prestige and power Costs? • Exchange rate effects • Domestic financial system • Burden of responsibility Exhorbitant privilege vs. “poisoned chalice”?

  5. Are we heading towards a competitive struggle for currency leadership? • RMB: is the dollar’s history the right analogy? • Reluctant Japan and preoccupied eurozone • Will the US fight to keep dollar on top? • SDR and USD in a world of reluctant leaders

  6. Summing Up • Is the rise and fall of international currencies a market-driven process? • Not entirely. Public policy plays a key role. • Is international currency issuance an exhorbitant privilege? • Not necessarily. Calculations of costs and benefits are complicated. • Are we heading towards a competitive struggle for currency leadership? • A world of reluctant leaders may be more likely, resulting in an enduring dollar-dominated order with a modest enhancement in the SDR’s role.

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