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The main point of this article is to debunk the idea that the global monetary and financial system simply intermediates savings across countries. A corollary of this idea is that US hegemony derives from the recycling of the savings of countries with surplus current accounts to those with deficit current accounts. This article argues that the international monetary system creates dollar-denominated assets and liabilities regardless of the current account positions of the countries in which borrowers reside. Furthermore, it is argued that the hegemony of the United States does not depend on the recycling of foreign surpluses. It enjoys a privileged position as a result of the differential in the return of its foreign investments compared to those of other countries, particularly emerging and developing countries. However, this yield differential does not depend only on liquidity, as the proponents of the money view argue, but also on the economic policies that emerging and developing countries put in place. This article argues that the international monetary system is rapidly changing. A sign of this change is the different composition of external financial assets in China’s balance of payments, with a greater share of loans to developing countries than foreign reserves. [ABSTRACT FROM AUTHOR]

AbstractFreezing or the danger of freezing the assets of many countries can make the run away from the US dollar an uncontrolled process. Whereas in the long term this process may be beneficial for the US and the world economy, the short- and medium-term adjustment costs can be extremely high. To ensure a soft landing the New Development Bank of BRICS countries can issue bonds that would be sold to countries, whose assets have been frozen or are afraid that they might be frozen by the West, so that they can store their foreign exchange reserves in these bonds. The Bank will invest the proceeds from the sale of these bonds in the traditional financial instruments for storing foreign exchange reserves—US and EU treasury bills and bonds denominated in the same dollars and euros. These BRICS bonds would be less prone to sanctions and thus considered safe investment. [ABSTRACT FROM AUTHOR]

After centuries of metallic monies, for a long time, our understanding of fiat money had remained rudimentary and often controversial. Successive regimes eventually failed. The end of the Bretton Woods system marked the moment when the link between fiat money and gold was severed and when the possibility of letting exchange rates float became possible. The small open economies adopted various arrangements. Informed by these experiments, the understanding of monetary policy substantially progressed, leading to the widespread adoption of the expected inflation-targeting strategy with similar inflation targets. As a result, exchange rate variability has declined. The US dollar dominance was maintained and even increased. Yet, new challenges have emerged. The long period of interest rates stuck at the effective bound effectively suspended the use of the strategy. Then, during the post-pandemic surge in inflation rates, inflation forecasts became highly imprecise. [ABSTRACT FROM AUTHOR]

The financial haemorrhaging of lower income countries in the form of capital flight is a leading cause of global economic inequality. On an annual basis, trillions of dollars bypass the already starved fiscal spaces of nations mired in poverty, making their way instead to lucrative offshore bank accounts governed by secrecy jurisdictions. The present article relates this phenomenon to the institutional architecture of the global financial system and provides causal evidence that structural adjustment programmes implemented at the behest of international financial organizations amplify such capital flight. In particular, by isolating exogenous variation in policy conditionalities through the use of instrumental variables, we find that trade liberalization, financial sector reforms and privatization measures mandated by the International Monetary Fund in developing contexts substantially increase financial outflows occurring via current and capital account transactions. Our findings thus document the contribution that structural adjustment makes to an underappreciated facet of contemporary global inequality. [ABSTRACT FROM AUTHOR]

The contested alliance of state and finance embodied in public debt forms a nexus that has shaped the emergence of capitalism, and has also strengthened and transformed as capitalism developed. The state’s recourse to debt is the foundation for the emergence of a powerful financier class, but this powerful class of financiers has also come to depend on the state to provide the fodder for its continual growth. This paper investigates the key role of this nexus in constituting the international monetary hierarchy and by ordering relations between advanced capitalist countries and enforcing the financial subordination of the periphery through a comparative-historical analysis of British hegemony in the 19th century and US hegemony in the 20th century. [ABSTRACT FROM AUTHOR]

Why do estimates of the European Monetary Union (EMU) effect on trade vary so greatly? Rose (2017) shows that the largest factor determining the size of EMU trade estimates is the choice of sample, with studies using only European or rich countries finding smaller impacts than those using more complete trade datasets. I push this question one step further, asking instead: what is the appropriate comparison group with which to study the euro's trade impact? Using a first stage estimation of selection into the EMU and a robust propensity score weighting estimator, I extend the work of Millimet and Tchernis (2009) to a larger dataset of countries and years, showing that gravity estimates of the euro effect on trade are smaller when sample truncation and weighting brings the differences in observable characteristics between EMU and non-EMU pairs close to zero. Utilizing a Poisson pseudo-maximum likelihood approach, I find that estimates using this more robust estimator reflect the same pattern, but with significantly less initial upward bias. My work suggests that policy analysis in trade should be more careful to consider the comparability of "treated" and "control" observations, and more readily utilize propensity score methods as a data driven approach to rebalancing samples when differences across these groups are large. [ABSTRACT FROM AUTHOR]

Does the accumulation of large Target imbalances threaten the viability of the monetary union? Several German and central European scholars have responded in the affirmative: in the case of a disorderly break-up, debtor countries might have an incentive to default on their Target balances, and this would represent a real loss to Target creditors. Most academics have rejected this argument: in their view, a Target default would be only a paper loss to creditors. I propose a simple and unified framework to study the working of the Target system in response to different shocks. I then argue that the German criticism of the Target system is not so unfounded after all, and should be taken seriously. The underlying problem is the co-existence of separate central banks within the Eurozone; if one wants to preserve this feature, no alternative to the current Target system and its problems seems to be realistically available. In particular, comparisons with the Interdistrict Settlement Account of the US Federal Reserve system are misleading. [ABSTRACT FROM AUTHOR]

Over the years, policymakers have explored various combinations of varying degrees of monetary policy independence, exchange rate stability, and financial openness while recognizing that not all three policies can be achieved to the fullest extent – the "monetary trilemma" hypothesis. In recent years, holding international reserves (IR) has become an important policy instrument as a buffer or insurance against liquidity shortages. Significant and fundamental economic events such as currency crises have often changed the policy mix. In this paper, we find that countries' policy mixes have been diverse and varied over time from the perspective of the trilemma and also IR holding. We then illustrate how the combination of the three trilemma policies and IR holding drastically changed before and after the Asian Financial Crisis (AFC). However, the Global Financial Crisis did not lead to a drastic change in the policy arrangements. We find that countries that faced large terms of trade shocks or negative economic growth during the crisis increase IR holding in the post-AFC. Countries that had negative growth during the crisis also tend to pursue more exchange rate flexibility and more open financial markets. This characteristic is true for commodity exporters, but not for manufacturing exporters. Countries with large current account deficit (i.e., "large capital borrowers") tend to be more sensitive to economic growth at the time of the AFC. Countries that are under IMF stabilization programs or those with sovereign wealth funds tend to hold more IR. These characteristics were not found in the aftermath of the GFC. In general, countries increased their IR holdings after the GFC, but did not respond to the during-crisis economic and institutional conditions. [ABSTRACT FROM AUTHOR]

The special drawing right (SDR) is issued by the International Monetary Fund (IMF). The SDR has the potential to strengthen dramatically the international monetary system. Established in 1969 and allocated twice during its first decade, the SDR was in the institutional closet from 1980 until 2009 when $250 billion in SDRs were allocated to members of the IMF to help address the global financial crisis. In 2021, another $650 billion in SDRs were allocated to help address the Coronavirus pandemic. The SDR has proved itself as a crisis instrument. This paper proposes regular annual SDR allocations. [ABSTRACT FROM AUTHOR]

This paper asks whether the policy of benign neglect that the United States (U.S.) government adopted in the 1970s toward foreign purchases of U.S. dollar securities and the price of the U.S. dollar has advanced the ability of the U.S. to achieve its employment, price level, growth, and national security objectives. The dominant objective of some members of the U.S. team at Camp David in August 1971 was to secure an increase in the U.S. trade surplus. One choice for the U.S. government was to increase the U.S. dollar price of gold to $100 or $140 an ounce, much like the increase to $35 an ounce in 1934. The competing choice was to close the gold window. Some members of this team believed that this choice would facilitate the move to a flexible exchange rate arrangement and that the U.S. trade surplus would increase as the price of the U.S. dollar fell. The price of the U.S. dollar has increased since the late 1970s and the purchase of U.S. dollar securities by foreign central banks, sovereign wealth funds, mutual funds, insurance companies, pension funds, and families have meant that U.S. exports of securities have displaced U.S. exports of goods. The U.S. trade surplus morphed into a U.S. trade deficit in the early 1980s, which has increased secularly, and now is nearly four percent of U.S. GDP. U.S manufacturing employment declined from 20 million in 1980 to 13 million in 2020. The increasingly large U.S. trade deficit led to the loss of three million U.S. manufacturing jobs (ball park estimate). Hundreds of factory towns in the Northeast and Midwest were decimated by the increase in the U.S. trade deficit. [ABSTRACT FROM AUTHOR]

This paper uses principal components analysis to describe the evolution of current account imbalances in a sample of 18 Organization for Economic Cooperation and Development countries from 1950 to 2020. The analysis shows, using only statistical methods, how two groups of countries formed in the 1980s. There is the current account surplus group including countries in Northern Europe, Japan and Switzerland and then the deficit group including the United States, the United Kingdom, Australia and several countries in Southern Europe. The divergence cannot be attributed to divergence in fiscal and monetary policy. Instead, there is some support for the thesis of Robert Aliber set out in another paper in this issue that capital flows between countries affect exchange rates, asset prices and the current account. The paper builds on two earlier papers in this journal by the same author, one showing how countries that have experienced a financial crisis tend to subsequently develop current account surpluses and the other showing how surpluses and deficits caused by capital flows affect the domestic real economy. [ABSTRACT FROM AUTHOR]

Purpose – This paper analyses the possibility of Latin America's (LA) major economies adopting dollarization, considering that in the last decade macroeconomic instability has once again challenged the ability of certain economies to properly manage their own currency. Design/methodology/approach – To determine the feasibility of adopting the US dollar as official currency, the author uses the framework of optimum currency area (OCA) theory, since, in fact, dollarization is an incomplete monetary union. The author uses a structural vector autoregressive (SVAR) model to identify what type of structural shock — country-specific, regional or global — prevails in LA economies. For this purpose, the US output is used to represent the global output and determine how the shocks of the US influence the output trajectory of each LA nation. The higher the influence of the US product, the lower the costs of adopting the US dollar. Findings – The results of the variance decomposition show that the influence of the US shocks in the gross domestic product (GDP) trajectory of LA countries has significantly decreased over the last two decades, even in the currently dollarized economies. The estimates for Venezuela and Argentina show that the importance of US shocks in the trajectory of their GDP is low. Therefore, the cost of adopting the US dollar as the official currency would be high. Originality/value – In view of hyperinflation and macroeconomic imbalances in certain LA nations, the dollarization debate has resurfaced in recent years. However, the literature that empirically evaluates the feasibility of adopting dollarization as a monetary system under current economic conditions is limited.

A simple statistical method is used to identify what domestic and external variables the monetary authorities in different countries have succeeded in stabilising, in each year over the period 1974–2017. The findings emphasise the shift over time from exchange rate to domestic variable (mainly price) stabilisations, and from cases where no variable is stabilised on the criteria used and inflation is 5% or higher, to cases where no variable is stabilised but inflation is constrained to be below 5%. The stabilisations identified are also compared with a recent classification of countries' monetary policy frameworks, which has a different approach and different sources: the overlaps are considerable but incomplete. The association between the different stabilisations and economic performance in terms of inflation and growth is then examined, through both unconditional and conditional analyses. The clearest finding is that constrained no overall stabilisation is associated with better performance than unconstrained no overall stabilisation, and typically with as good performance as price stabilisation. It is suggested that good macroeconomic outcomes can be obtained in the context of a variety of stabilisations, provided the monetary authorities are 'serious about inflation'. [ABSTRACT FROM AUTHOR]

This paper explores some of the ways in which international central banking can contribute to containing the imminent worldwide climate crisis in a context in which the role of national central banks is important but effectively limited to employing two new stabilization policy tools: macroprudential policy and QE programmes. The authors argue in favour of institutional reform that would gradually transform the IMF into an international central bank and the SDR into a genuine international currency. Even its limited scope would substantially increase the IMF’s capacity to solve one of the key problems of the global climate policy, namely the shortage of funding for the decarbonization of developing economies.

Recent sanctions on the use of Russia's international reserve assets seem likely to reduce the appeal of US dollar reserves as a ?shock absorber? for international payments. But international reserves are also a means to reassure foreign investors that problematic countries will not confiscate their investments. The collateral motive for holding dollar reserves has been enhanced by the demonstration that the United States is willing and able to sanction misbehavior. Geopolitically risky countries now more than ever need to reassure foreign investors that their investments are safe from expropriation. We conclude that recent events will strengthen the role of the dollar as the key international reserve currency. [ABSTRACT FROM AUTHOR]

There is thus a fundamental credibility issue about the willingness of the ECB to be a lender of last resort in the government bond markets. This will continue to make the eurozone a fragile construction. As a result, the possibility of a future euro crisis cannot be excluded. [ABSTRACT FROM AUTHOR]

Natural gas plays important role in the global energy sources, hence understanding its price behavior is important to various economic agents. This study examined whether rational bubbles existed in the three major natural gas markets by employing Fourier unit root tests and a nonparametric rank test for cointegration. Data comprises monthly data on the three largest natural gas indices in the world – Henry hub (USA), European and Asian (Japan) for the period from 2000M1–2021M12. The results reveal that the efficient market hypothesis holds in the market ruling out the possibility of arbitrage opportunities. The rank test estimates at 0.009677, 0.009872, and 0.009657 at 1% significant level for the pre-COVID-19 sample period, and at 0.009671, 0.09874, and 0.009661 at 1% significant level for the full sample period contradict the rational explosive bubble framework that suggests deviation of prices from the fundamentals. This suggests that natural gas prices markets are efficient at least in the weak form, the implication is that disruptions in the market will be short-lived as the market will fundamentally adjust back to equilibrium.