The Evolution of International Monetary System and China’s Choice in the Process of It’s Diversification

Type:
SCID Working Paper 420

Author(s):

Published:
06/14/10

Abstract:
This paper analyzes on the evolution of international monetary system based on the concept of international monetary power, holds that the collapse of the Bretton Woods System was resulted from not only its internal instability but also American desire to strive for more monetary power. The float exchange rate and the real dollar standard have been expanding American monetary power. However, the expansion of American monetary power brings reflective shock to the system. Asia crisis was the most momentum episode. Thereafter, many countries altered their views on optimal foreign reserve, global reserve soared fast and the structure of holders changed dramatically. As a result, any monopoly international reserve monetary arrangement inherits intrinsic instability, the soaring of reserve pushes reverse mechanism to reform the international monetary system. All of the twin of deficit in U.S, low interest rate of dollar and expansion of dollar liquidity are inherited from the system dominated by dollar. They are balance measures by U.S, Unfortunately, it is knife-edged balance. This further develops Triffin dilemma. Meanwhile, the diversification of global economy challenges the existed international monetary system. The diversification of the system is indispensable to accord with economy changes and is the intrinsic requirement to enhance the stability of the system and to break away from monopoly monetary power. This is a great opportunity for RMB to internationalization. In line with the above, this paper probes the RMB’s internationalization precondition in perspective of international monetary system history.