Working Paper: CEPR ID: DP13453
Authors: Matteo Maggiori; Emmanuel Farhi
Abstract: Currently both the International Monetary System (IMS) and the International Price Systems (IPS) are dominated by the U.S. The emergence of China, both as reserve currency and as a currency of invoicing, is likely to disrupt this status quo. We provide a framework to understand the forces that will shape this transition and identify sources of instability. We highlight the risk of an abrupt shift triggered by a run on the dollar.
Keywords: reserve currencies; triffin dilemma; nurkse instability; confidence crises; safe assets; exorbitant privilege; dollar; rmb
JEL Codes: D42; E12; E42; E44; F3; F55; G15; G28
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| US dollar dominance (F31) | stability of the IMS (C62) |
| shift to Chinese renminbi (F31) | destabilization of US dollar's position (F31) |
| US fiscal discipline failure (H69) | confidence crisis (H12) |
| US fiscal discipline failure (H69) | US dollar depreciation (F31) |
| US dollar depreciation (F31) | confidence crisis (H12) |
| belief in US fiscal misbehavior (E62) | actual fiscal crisis (H12) |
| emergence of renminbi as reserve currency (F31) | decrease in US dollar's exorbitant privilege (F31) |