The international monetary system consists of individual countries, financial markets, the currencies of various countries and floating exchange rates between the currencies. This enables the regulated flow of capital between countries through trade, remittances and for other purposes. The flow of capital is supported by certain rules of the game as propounded by the Breton-Woods institutions.
In this regard the International Monetary Fund (IMF), the Bank of International Settlements (BIS), and the Organisation for Economic Cooperation and Development (OECD) play an important role in the functioning of the international monetary system.
The experience with the functioning of seven decades of the international monetary system, confirms that the system is skewed in favour of developed countries especially, the US.
After the Second World War, the US Dollar has been by far the most prominent international currency in all aspects, whether as a unit of account, medium of exchange or value.
It does not require any brains to predict that stronger the economy of a country is, the more powerful the currency of that country would be. But despite an economy in the doldrums, an evergreen currency has something to do with institutional architecture.
There seems to be a vicious cycle as more trade happens in the US Dollar, it remains the preferred option. Precisely for this reason, a great deal of cross-border trade in commodities, such as oil etc is denominated in Us Dollars.
This unchallenged position of the US Dollar continued till the formation of the European Union and the evolution of the Euro. As of today, about 40% of international payments are settled in US Dollars and Euros. But by excluding the area of the Eurozone, the real influence of the US Dollar is about 80 per cent globally.
This continued over-dominance of the US Dollar gives the United States disproportionate influence in international trade and commerce.
It is a paradox that irrespective of the health of the US economy, the US Dollar always remains strong. The US Dollar’s position as the mainstay of global reserve currency means that the US is able to borrow money at low-interest rates. This facility is not available to any other country.
Due to the above reasons, the chorus against the hegemony of a handful of countries whether in international governance (the United Nations) or the monetary system is growing louder. Except for paying occasional lip service by the rich and powerful, the status quo has prevailed.
In order to change it, a trigger is often needed. In the case of Breton Wood institutions, it was the reconstruction of the global economy post-Second World War. Hopefully, this time new technologies usher in changes through peaceful means. The transformation has to be in the forms and uses of international currencies as well as in various aspects of financial markets and institutions.
Fintech companies and digital currencies offer the unique opportunity of faster, cheaper, and more secure international payments. Distributed Ledger Technologies (DLTs) offer the potential for reliable tracking of various stages of trade and financial transactions reducing one of the frictions associated with such transactions.
Let us rest assured that any such thing is not going to happen on its own. The technology is yet to be perfected. It is for the international community to seize the opportunity to create necessary and sufficient conditions for establishing a just and equitable international Monetary Order.
The concept of ‘vasudheva kutumbum’ is difficult to be understood by all and is harder to be implemented due to the strong resistance offered by forces currently in a vantage position.
It is justifiable that within the realm of competitive and comparative advantages, an unified global market will be the most efficient. The single international currency which currently looks like a utopian dream could be achieved in this globalized world.
Let us live for another day with the promise of a new international political and monetary order.
