Upgrading Bretton Woods: A Case for “Currency Baskets”
In recent years, shortages and insecurities have increasingly afflicted the global economy as it was grappling with issues such as supply-side disruptions, energy shortages and food security concerns. In the field of international finance, the world’s central banks had their fair share of risks, with one of the key shortages being the sore lack of reserve currencies coupled with few diversification options in allocating currency reserves. These concerns were magnified in 2022 after the escalation of geopolitical risks and the imposition of sanctions on Russia’s reserve assets in the hundreds of billions of dollars.
Such developments put into question the security of the dollar-centered international monetary system, rekindling discussions on the prospects of new reserve currencies such as the BRICS reserve currency. The new entrants in the international currency reserve space that are likely to emerge may include not only national reserve currencies but also currency baskets. If successful, these new entrants can transform the global monetary system towards greater optionality and lower exposure to geopolitical risks.
Among the new entrants in the reserve currency space is China’s yuan, a national reserve currency that has—slowly but surely—been taking a greater share of currency reserves and transactions in the global economy. Just like the dollar and any other national currency, however, the yuan may be susceptible to country-specific vulnerabilities, sanctions and swings in geopolitical risks. Read more>>
Leave a ReplyWant to join the discussion?
Feel free to contribute!