A powerful new understanding of global currency trends, including the rise of the Chinese yuan
At first glance, the modern history of the global economic system seems to support the long-held view that the leading world power’s currency—the British pound, the U.S. dollar, and perhaps someday the Chinese yuan—invariably dominates international trade and finance. In How Global Currencies Work, three noted economists provide a reassessment of this history and the theories behind the conventional wisdom.
Offering a new history of global finance over the past two centuries, and marshaling extensive new data to test established theories of how global currencies work, Barry Eichengreen, Arnaud Mehl, and Livia Chit?u argue for a new view, in which several national monies can share international currency status, and their importance can change rapidly. They demonstrate how changes in technology and in the structure of international trade and finance have reshaped the landscape of international currencies so that several international financial standards can coexist. They show that multiple international and reserve currencies have in fact coexisted in the pastupending the traditional view of the British pound’s dominance prior to 1945 and the U.S. dollar’s dominance more recently.
Looking forward, the book tackles the implications of this new framework for major questions facing the future of the international monetary system, from whether the euro and the Chinese yuan might address their respective challenges and perhaps rival the dollar, to how increased currency competition might affect global financial stability.
Barry Eichengreen is the George C. Pardee and Helen N. Pardee Professor of Economics and Political Science at the University of California, Berkeley. His books include Hall of Mirrors, Exorbitant Privilege, Globalizing Capital, and The European Economy since 1945. Arnaud Mehl is principal economist at the European Central Bank. Livia Chitu is an economist at the European Central Bank.
List of Tables vii
List of Figures ix
1 Introduction 1
2 The Origins of Foreign Balances 16
3 From Jekyll Island to Genoa 30
4 Reserve Currencies in the 1920s and 1930s 42
5 The Role of Currencies in Financing International Trade 58
6 Evidence from International Bond Markets 84
7 Reserve Currency Competition in the Second Half of the Twentieth Century 116
8 The Retreat of Sterling 145
9 The Rise and Fall of the Yen 158
10 The Euro as Second in Command 170
11 Prospects for the Renminbi 181
12 Conclusion 195