Aglietta, Michel --- "Prospects for the International Monetary System: Key Questions" [2012] ELECD 915; in Wouters, Jan; de Wilde, Tanguy; Defraigne, Pierre; Defraigne, Jean-Christophe (eds), "China, the European Union and Global Governance" (Edward Elgar Publishing, 2012)

Book Title: China, the European Union and Global Governance

Editor(s): Wouters, Jan; de Wilde, Tanguy; Defraigne, Pierre; Defraigne, Jean-Christophe

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781781004265

Section: Chapter 8

Section Title: Prospects for the International Monetary System: Key Questions

Author(s): Aglietta, Michel

Number of pages: 17

Extract:

8. Prospects for the international
monetary system: key questions
Michel Aglietta

OVERALL ASSESSMENT: THE NATURE OF THE IMS

Let us consider the international monetary system (IMS) as a public good
that should deliver two complementary outcomes: an adjustment
mechanism to correct imbalances in the balance of payments between
countries linked through international exchange on the one hand, and the
provision of international liquidity that facilitates international payments
on the other hand. They are complementary in the sense that the
malfunctioning of one requirement hampers the effectiveness of the other.
More specifically in a key currency system, the Achilles heel resides in the
relationship between the issuer of the key currency and the demand for
international liquidity by non-resident users. If the latter have no access to
an alternative international currency which is able to fulfil the full range of
monetary functions required by the international financial system, the
former has no incentive to make allowances for the interest of economic
agents in the rest of the world. There can be a mismatch resulting in either
too much or too little international currency in relation to the demand of
the rest of the world. Such an argument has been expressed in the Triffin
(1960) dilemma whose relevance has been going on for the last 50 years.
Domestic preferences in the US (the issuer of the key currency) have
tilted more often towards an excess supply of dollars than to the other side.
This disequilibrium has destroyed the Bretton Woods system ...