Reserve currency competition in a polycentric world financial system

This paper investigates whether the euro or renminbi could join or even replace the US dollar as a dominant global reserve currency. The US dollar has long been dominant in international trade and finance, due to the size and stability of the US economy and the liquidity of US financial markets. The euro of the European Union (EU) and the renminbi of China challenge the hegemony of the US dollar. The Eurozone’s institutional framework provides political stability and strong monetary authority, which make the associated currency, the euro, attractive as a potential reserve currency. China’s rise as a global economic power promotes the use of its currency in international transactions, propelling global acceptance of the renminbi. China has explicitly challenged US dominance in many international arenas, including finance. In this paper, it is useful for an econophysics approach to measure the sign of the strength of coupling. This approach is adapted to define the divergence rate of the US dollar in relation to other currencies, specifically the euro and the renminbi, by quantifying how the dollar diverges over time based on currency indexes. It involves calculating forces that represent the divergence rates between the US dollar and these currencies, using a modified version of Coulomb’s law. It also illuminates the dynamics of reserve currency competition, reaffirming the US dollar’s central role in the global financial system from 2001 to 2022. Despite the emergence of potential challengers like the euro and renminbi, the dollar’s dominance is likely to continue. As China’s economy, international trade, and military power have expanded, the renminbi is increasingly seen as a potential reserve currency in the global financial system. However, China has shown a willingness to centralize political power, perhaps making other countries more likely to resist the renminbi becoming a reserve currency. The euro and renminbi do not present credible alternatives to the US dollar because (1) political fragmentation within the EU and differing fiscal policies among member states undermine the euro’s reliability as a universal reserve asset, and (2) China enacts significant capital controls, lacks financial market transparency, and maintains a tight grip on economic policies. The US dollar’s unparalleled liquidity, its deep financial markets, and America’s geopolitical influence ensure the dollar’s continued dominance as the world’s primary reserve currency. The inherent structural and political challenges the euro and renminbi face make both unlikely to displace the dollar in the foreseeable future. Broader US hegemony, arising from it having the world’s largest economy and strongest military, has supported the dollar’s dominant role as a reserve currency, a dominance expected to endure.

PurposeIn 1974, the UN General Assembly adopted a landmark resolution proclaiming the establishment of a New International Economic Order. One of the basic aims of this declaration was to enhance the voice and participation of developing countries in the international economic decision-making process based on norms of equitable governance. More than four decades have passed since its adoption. This paper aims to reflect on the past 43 years of the global financial regulatory system in light of the notion of equitable governance as envisioned by the “New International Economic Order”.Design/methodology/approachThis paper surveys the global financial regulatory system from the vantage point of equitable economic governance. This discussion covers the period that comes after the 1974 UN landmark resolutions that declare the establishment of a “New International Economic Order”. The authors use qualitative and quantitative approach in this study. They use descriptive statistics and intuitive discussions of certain cases to carry the objective of the paper forward.FindingsFirst, part of the development in global financial regulation manifests the establishment of informal networks that embark on global regulatory issues, while being very exclusive in their membership policies. Second, the lack of full and effective participation of developing countries in the decision-making and norm setting remains unsolved in the global financial regulatory system. Third, the shadow role of the World Bank and International Monetary Fund was of great significance in assisting the implementation of non-binding regulatory rules of international finance in developing countries despite the concerns of legitimacy and equity in the making of international standards. In sum, the global financial regulatory system that emerged in the past four decades is quite different from that aspired by the NIEO.Originality/valueThe declaration of NIEO coincides with the collapse of the Bretton Wood’s fixed exchange rate which in turn leads to the emergence of a new financial system and regulatory development. This period marked the proliferation of informal networks that make policy recommendations or non-binding rules with global implications. As far as the literature review goes far, this paper is the first to survey the post Bretton Wood’s period of the global financial regulatory architecture based on the tenets of the “New International Economic Order”.

The international financial system, supported by economically and socially beneficial statutory activities of bona fide TNCs, is a breeding ground for transnational organized crime. International legal forms and consequences of the delinquent behavior of TNCs in the global investment and financial market, contributing to the intensive formation of the causes and conditions of transnational organized crime, are analyzed. The delinquent behavior of TNCs in the global investment and financial market is formalized by the production and legalization of criminal financial capital, the turnover of which in the global economic system consistently passes through the stages: 1) emissions, 2) integration, 3) accumulation, 4) conversions. The international legal consequences of the delinquent behavior of TNCs in the global investment and financial market are objectified in an internationally significant adverse irreversible impact on the international security and the sovereignty of States (preventive jurisdictions), international financial, corporate, competitive, and digital legal relations that stabilize the international economic system, as well as compensable or non-compensable (excluding compensation) substantial property and non-property damage caused to international and domestic institutions that guarantee international and national law and order. In the context of a real threat to the international security, States have international obligations to systematically combat and prevent the delinquent behavior of TNCs in the global investment and financial market.

This article presents a fresh perspective on the Triffin Paradox, a concept introduced by economist Robert Triffin in the mid-20th century that continues to have a significant impact on global financial systems and policies. Despite the passage of time and the evolution of the economy, the fundamental principles of the Triffin Paradox remain relevant in today's financial discussions. The paper provides a thorough analysis of the ongoing relevance of the Triffin Paradox in the modern global economy. It draws upon historical context, theoretical frameworks, and empirical evidence to shed light on how the paradox continues to manifest itself in the current financial landscape. Specifically, it explores how the dominance of the U.S. dollar as the world's primary reserve currency perpetuates structural imbalances and systemic vulnerabilities, echoing the concerns raised by Triffin. Moreover, the paper delves into the implications of the Triffin Paradox for various stakeholders, including policymakers and central banks. It examines the challenges posed by the pursuit of domestic monetary policy objectives in an interconnected world, where the stability of the global financial system relies heavily on the stability of the reserve currency issuer. Additionally, the paper explores potential strategies for mitigating the risks associated with the Triffin Paradox and fostering a more sustainable international monetary order. By integrating insights from economics, finance, and international relations, this paper contributes to a deeper understanding of the Triffin Paradox and its enduring significance in shaping contemporary financial dynamics. It emphasizes the need for policymakers and stakeholders to address the inherent structural tensions in the global monetary system, with the goal of promoting financial stability, economic resilience, and inclusive prosperity worldwide.

The purpose of the work is to study the ratio of social and financial risks and to analyze their influence on the modern global financial system, as well as to develop recommendations for managing these risks. For that, the authors use the methods of regression and correlation analysis for determining the influence of various risks on the modern global financial system. At that, the indicator of the influence of social risks is the volume of the global stock market, as it is subject to the strongest and most vivid influence of “human factor”. The indicator of technological risks is the volume of the global market of digital payments, as it is peculiar for the highest level of authomatization and dependence on digital technical means and software. The resulting indicator that characterizes the state of the global financial system is global GDP per capita. Timeframe of the research covers 2006–2017. It is proved that social and digital risks determine functioning and development of the modern global financial system. This emphasizes the necessity for complex management of these risks. Recommendations for crisis management include the conceptual model of complex management of social and technological risks of functioning and development of the modern global financial system. This model offers measures for managing social and technological risks and risks of globalization, thus reducing susceptibility of the global financial system to the influence of “human factor” and its dependence on reliability of digital devices and global tendencies.

This paper contributes to the finance literature by investigating the risk contagion and bailout effects in the global financial system. We use the bilateral exposure matrix to examine the impact of credit shocks and liquidity shocks on the global financial system when a Global Systemically Important Bank (G-SIB) is supposed to be in distress. The findings indicate that the global financial network is dominated by large and medium-sized financial institutions. Credit shocks does not play a significant role in risk contagion nor do they trigger the systemic risk in the global financial system. However, the global financial network is more vulnerable to liquidity shocks than to credit shocks. If a credit shock and liquidity shock overlaps with each other, the hybrid shock can exacerbate the risk contagion effects and lead to rapid propagation throughout the global financial network. If a regulator bails out the distressed institutions, the bailout efficiency increases with the number of rescued institutions. However, the improvement in of bailout efficiency decreases with the number of rescued institutions. If a regulator can promote financial institutions to raise the rollover ratio, the financial system will be more robust to shocks. This paper provides a ground view of systemic risks contagion and sheds light on directions for future research on systemic risk contagion in the global financial system. • The credit shock does not play a significant role in risk contagion in the global financial system. However, the liquidity shock has shown more substantial effects than that of the credit shock. • If the credit shock and liquidity shock overlaps with each other, the contagion effects are amplified. • If the regulator implements the bailout, the total rescue effects in the second round is better than that of other rounds. • If the financial institutions can raise the rollover ratio, the impact of systemic risk could be reduced significantly.

Interconnectedness in the Global Financial Market

This edited collection investigates present and future developments in the global financial system after the outbreak of the COVID-19 pandemic. The contributors examine the effects of health issues and epidemic diseases in state economies and predict future effects on the banking sector, especially central banking. The contributors also offer important insights into current issues and historical transformations related to currencies, commercial banking, central banks, financial institutions, and economic policy.

INTERRELATIONSHIP OF INFLATION, EXCHANGE RATE AND INTEREST RATES IN THE CONTEXT OF HUNGARY'S STRATEGIC POLICY

In recent years, the importance of international capital flows has been increasing, which has significantly accelerated the integration process of the international financial system. After 2008, the central banks of major western developed economies implemented loose monetary policy, which led to a large amount of capital flowing into new market countries. However, international capital flowed out of new market countries after Federal Reserve Chairman Ben Bernanke said in 2013 that the Federal Reserve would gradually withdraw from quantitative easing.The great fluctuation of international capital has aroused the debate about monetary policy and macro-prudential policy. Rey (2015) believes that under any exchange rate system, only the control of international capital flows can maintain the independence of monetary policy. In view of the above findings, since 2016, the People’s Bank of China has established a macro-prudential regulatory mechanism for international capital flows to resist external financial shocks.By introducing domestic and international financial institutions, this paper brings the macro-prudential policy of foreign financial shocks and capital flows into the DSGE framework of small countries’ open economy. Domestic financial institutions can raise funds by absorbing the deposits of their own residents and foreign residents; international financial institutions buy and sell the creditor’s rights issued by various countries, so as to implement capital flows.It is found that under the impact of foreign interest rate increase, on the one hand, it will tighten the balance sheet of domestic financial institutions, and reduce the scale of corporate credit through bank incentives and constraints; on the other hand, it will cause the devaluation of domestic currency and international capital outflows, and affect the stability of the financial system. The macro-prudential management mechanism of capital flows can enhance the ability to resist external financial shocks. For China, the proportion of foreign debt is relatively low, and the policy effect is relatively mediocre for the counter cyclical tax adjustment mechanism of external borrowing of domestic financial structure; however, the counter cyclical adjustment mechanism for the capital flow of international financial institutions can significantly improve social welfare.This paper gives the following policy recommendations: Firstly, we should increase the significance of external financial risk prevention. In recent years, the rapid growth of international capital flows has brought new challenges to new economies. Secondly, we should strengthen the supervision of cross-border capital flows to resist external financial risks. In the process of further opening up of China’s financial market, the People’s Bank of China should improve the macro-prudential supervision of foreign exchange market, real estate market and credit market to prevent systemic financial risks. Finally, we should properly solve the financing problems of enterprises. For China, capital outflows will aggravate the already severe credit market pressure. Therefore, on the one hand, resist the external financial risk contagion through the macro-prudential supervision mechanism of capital flows; on the other hand, maintain the liquidity at a reasonable level through the flexible operation of monetary policy, in order to support economic growth.

İslami finans alanında dünyada lider ülkelerden olan Malezya’da İslami bankaların varlıkları yanı sıra sukuk ve diğer İslami fonlar İslami finansal sistemde önemli bir pay almaktadır. Ülkede, İslami finansal sistemin gelişimini sürekli kılmak adına Şeriat kuralları dikkate alınarak yeni İslami finansal enstrümanların geliştirilmesi konusunda önemli inovasyon çalışmaları yapılmaktadır. Ülkede İslami bankacılık uygulamalarının başlatıldığı 1983 yılından günümüze sektörde önemli ilerlemeler kaydedilmiştir. Günümüzde 65 milyar $’ı aşan sermayesi ile İslami bankacılık sektöründe Malezya, model bir ülke konumundadır. İslami bankacılık sisteminin ortaya çıkışında mudilerden gelen faizsiz hizmet alma talebi önemli bir motivasyon olmuştur. Bankacılıkta dual/ikili sistemin uygulandığı ülkede, yerli ve yabancı İslami bankaların yanı sıra konvansiyonel bankalar da faaliyette bulunmaktadır. Malezya’da Şeriat kurallarınca uygun görülen Mudaraba, Muşaraka, Murabaha, Selem, Vadîa gibi çok çeşitli İslami kontrat modelleri uygulanmaktadır. Öte yandan, 2002 yılında Şeriat hükümlerine uygun olarak Sukuk ihracına başlanmıştır. Malezya günümüzde sukuk ihracı konusunda dünyanın önde gelen ülkeleri arasında yer almaktadır. Ancak Malezya’da, İslami finans konusunda diğer ülkelere göre rekabetçi üstünlüğe karşın, uygulamada bazı güçlükler yaşanmaktadır. Bu çalışmanın amacı, Malezya’da İslami bankacılık ve İslami finans uygulamalarını incelemektir. Malezya’da İslami bankacılık ve İslami finans uygulamaları hakkında ayrıntılı bilgiler verildikten sonra bu ülkede İslami finansın geliştirilmesine yönelik öne çıkan politika önerileri üzerinde durulacaktır. Çalışma, Malezya’da finansal sistemin yapısı yanında İslami bankacılığın yapısı ve işleyişi, İslami finansal enstrümanlar, sukuk ve tekâfül uygulamaları ile İslami finans sistemin gelişmesine yönelik politika önerileri başlıklarından oluşmaktadır.

Since the global financial crisis in 2008, international energy markets have become more closely linked to financial markets and energy prices have exhibited more financial characteristics. Therefore, it is of great theoretical and practical significance to study the time-varying synergy between the energy market and the global financial market. This paper sets up a model for realizing the time-varying co-movements between energy markets and global financial markets: It uses the Diebold &Yilmaz spillover index method and its dynamic expansion model to test the spillover mechanism of market volatility shocks, applies the deep long and short-term memory (DLSTM) model to predict market prices. The results of this study show that, first, energy markets and global financial markets are closely linked networks, and the spillover effects have obvious time-varying characteristics. Second, from a static spillover perspective, the Global Financial Price Index shows the largest net exporter in both yield and volatility spillovers, suggesting that the global financial development market has the strongest influence on other markets. However, in the volatility spillover, the net spillover index shows alternating periods of positive and negative periods most of the time.

After the Great Recession and unconventional monetary policy, which saved in many countries the financial system, the debate about money and the financial system became popular again. The article analyzes the development of the domestic and global financial systems during the last debates as well as monetary policy and reform policies during and after the Great Recession. It also discusses critical fundamental alternatives for example the proposal to reintroduce a commodity money system or private money like Bitcoins. These debates sometimes mix up the different functions and forms of money. Several contributions based on a Marxian and Keynesian approach clarify functions and forms of money including the possibilities and limitations to stabilize a capitalist economy with monetary policy and reforms of the financial system.

Acknowledgments. Introduction: Just How Global Are We? Chapter 1: It May Be News, But It Isn t New: A Brief History of Globalization. Tradable Goods. From Goods to Services. Which Services Remain Rooted? Why So Newsworthy? Chapter 2: Countries Control Their Fates: How Little Globalization Explains. Who Calls the Shots? An Inadvertent Experiment. The Uneven Course of Manufacturing. The Recipe for Productivity Growth. Importance of Incremental Improvements. Tell Me Again: Why Is China Rising? Episodic Improvements and Retreats. Widely Shared Diversions. What About Free Trade? Keep It Local. Chapter 3: Employment Trends for Globalization 3.0: Are All the Good Jobs Going Away? Recent History as a Guide. Recent Patterns of Employment and Unemployment in the United States. The Changing Nature of Work. The Meaning Is in the Details. That Giant Sucking Sound Is Coming from ... But Will the Future Be Different? What about Wages? Chapter 4: Can We Make Any Money?: What Globalization Does to Profi ts. Companies Under Globalization 3.0. Why Some Companies Are Profi table. Profi ts in Competitive Markets: Low Before Globalization, and Low After. Profi ts in Protected Markets: Do They Survive? How to Keep Competitors Out. The Special Role of Economies of Scale Advantages. Competitive Advantages in a Global World. The Future of Profitability. Chapter 5: International Finance in a Global World: Home Field Advantage. Flow of Funds. Foreign Direct Investment: Not Where the Action Is. Financial Markets and Portfolio Investment: Not Here, Either. Institutions as Investors: These Do Matter. Safer at Home: Financial Markets and the Limits of Globalization. Global Capital Markets and Economic Development: More Headlines Than Production Lines. Chapter 6: A Genuine Global Economic Problem: Replacing the Consumer of Last Resort. The Link between Reserve Currencies and Global Financial Stability. Chronic Surplus Countries and Monetary Mercantilism. The Global Financial System and Global Economic Stability. The Situation of the United States. A Modest Proposal for a New Reserve Currency. Conclusion: Beyond Economics. Globalization and Everything Else. One Last Question. Notes. About the Authors. Index.

В настоящей статье проводится анализ роли и особенностей участия Российской Федерации в современной мировой валютно-финансовой системе. Исследование базируется на комплексном рассмотрении ключевых аспектов данной проблематики, включающих в себя эволюцию мировой валютно-финансовой системы, влияние процессов глобализации и регионализации, специфику валютно-кредитной политики России. Особое внимание уделяется анализу эффективности двустороннего и многостороннего сотрудничества РФ в валютно-финансовой сфере, в том числе в рамках таких международных институтов и форматов взаимодействия как МВФ, БРИКС, ЕАЭС, ШОС. На основе изучения широкого круга источников, включая данные Минфина РФ, ЦБ РФ, Росстата, международных организаций, научных публикаций отечественных и зарубежных авторов, делаются выводы о текущем положении и перспективах укрепления позиций России в мировой валютно-финансовой архитектуре в условиях нарастания геополитической напряженности и ужесточения санкционного давления. This article provides a deep and comprehensive analysis of the role and features of the Russian Federation's participation in the modern global monetary and financial system. The study is based on a comprehensive examination of key aspects of this issue, including the evolution of the global monetary and financial system, the impact of globalization and regionalization processes, and the specifics of Russia's monetary and credit policy. Particular attention is paid to the analysis of the effectiveness of bilateral and multilateral cooperation of the Russian Federation in the monetary and financial sphere, including within the framework of such international institutions and interaction formats as the IMF, BRICS, the EAEU, and the SCO. Based on the study of a wide range of sources, including data from the Ministry of Finance of the Russian Federation, the Central Bank of the Russian Federation, Rosstat, international organizations, and scientific publications by domestic and foreign authors, conclusions are drawn about the current situation and prospects for strengthening Russia's position in the global monetary and financial architecture in the context of increasing geopolitical tensions and tightening sanctions pressure.