BELOW THE DOLLAR DOMINANCE: PATTERNS OF THE EMERGING FRAGMENTED, MULTIPOLAR AND MULTI-LAYERED CURRENCY WORLD

Marina Zucker-Marques; Barbara Fritz; Aninna Kaltenbrunner; Bianca Orsi

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Trabalho

Título do Trabalho

BELOW THE DOLLAR DOMINANCE: PATTERNS OF THE EMERGING FRAGMENTED, MULTIPOLAR AND MULTI-LAYERED CURRENCY WORLD

Autores

Marina Zucker-Marques
Barbara Fritz
Aninna Kaltenbrunner
Bianca Orsi

Modalidade

Resumo Expandido (associados AKB)

Área temática

Área 5. Economia internacional

Data de Publicação

02/12/2024

País da Publicação

Brasil

Idioma da Publicação

Português

Página do Trabalho

https://www.even3.com.br/anais/akb2024/898996-below-the-dollar-dominance--patterns-of-the-emerging-fragmented-multipolar-and-multi-layered-currency-world

ISBN

978-65-272-0872-3

Palavras-Chave

Hierarchy; Currencies; Monetary Systems

Resumo

Current shifts in the global landscape have rekindled the debate over the potential demise of the US dollar, and the sources of its persistence in the international monetary system (IMS). The economic rise of emerging market economies, evolving production chains, and geopolitical tensions have increased the dissatisfaction of these countries with the US dollar-dominated IMS. This discontent also extends to the financial sphere, including US dollar-related sanctions, such as freezing US dollar reserves and politicizing international payment infrastructure. At the same time, many authors argue that the deep embeddedness of the US dollar in the international financial system has created network effects that are difficult to overcome by other currencies, rendering it unlikely for the US dollar to lose its dominant currency status (i.e. Prasad, 2021). This paper argues that we are observing two concomitant developments. While the US dollar remains the dominant currency for global transactions, the IMS is becoming increasingly complex and fragmented on a regional and local level, with more currencies assuming cross-border functions in their bilateral operations. Yet, particularly in the Global South, the increased cross-border use of their national currencies remains highly scattered and incomplete. For example, Orsi et al. (2024) show that the rising participation of non-resident investors in Global South local currency assets is largely driven by short-term speculative motivations, rather than their use as a means of payment or stable store of wealth. Cohen and Benney (2014) argue that analyzing the IMS from a political economy perspective requires a solid understanding of its key aspects and structure of composition. Thus, it is relevant to pay attention to numerous initiatives from peripheral countries to reduce their dependency on the US dollar. While these initiatives individually are far from representing an overhaul of the functioning logic of the IMS, they are important for two reasons. First, the ability of peripheral countries to reduce their dependence on central currencies (in particular, the US dollar) in their cross-border operations has fundamental implications for these countries’ monetary autonomy, financial stability, and more generally sustainable economic development (Fritz et. al 2023). Second, as highlighted by Grabel (2018), seemingly incoherent and small innovations can lead, even if unintentionally, to larger transformations within the international financial landscape. However, not all these initiatives are equally successful in enhancing economic autonomy and potentially transforming the IMS. Therefore, in this paper, we ask (i) what initiatives led by the Global South can potentially reduce the US dollar dependence on the balance of payments, and (ii) how one can conceptualize and assess an IMS that is evolving “below the US dollar dominance”. To understand these changes, this paper presents an overview of the institutionalized attempts of countries or regions in the Global South to reduce the use of foreign currency in their cross-border operations, i.e. cross-border de-dollarization.5 Our contributions to the debate are threefold. First, we offer a comprehensive and updated review of the diverse bi- and multilateral arrangements to reduce the influence of the US dollar in countries in the Global South. While some of these arrangements have a long history, recent years have witnessed the creation of a series of new arrangements seeking to establish monetary and financial ties in their domestic currency in a broader sense than historically existed. We combine a comprehensive overview of recent cross-border de-dollarization attempts, with detailed case studies that reduce the use of foreign currency across different money functions. Second, we focus on processes of cross-border de-dollarization that so far have received little explicit analytical treatment in the literature. With cross-border de-dollarization, we refer to attempts to reduce the use of foreign currency in countries’ cross-border trade and/or financial operations, either bilaterally or regionally. Cross-border de-dollarization thus goes beyond domestic de-dollarization (where nationals/residents cease to use a foreign currency in the domestic economy), but is less far-reaching than full currency internationalisation, where non-residents/non-nationals use currencies for operations beyond the issuing country. Theoretically, we draw on the Global Credit View (GCV), the IPE literature on currency internationalisation, and the Post-Keynesian literature on currency hierarchy to distinguish between credit and non-credit-related de-dollarization attempts. We argue that initiatives that develop the credit-related function are more likely to result in a sustainable and more comprehensive de-dollarization for Global South economies. Finally, drawing on Grabel’s theoretical framework of “productive incoherence”, we offer a nuanced assessment of the evolving IMS. As it stands, the literature frames the debate over the nature of the IMS between unipolarity and multipolarity. We posit that although the international monetary system is concentrated in the US dollar, there is a complex and fragmented “ecosystem” of arrangements below its dominance. These initiatives contribute to the limited use of multiple currencies in specific regions, leading to highly partial and incomplete substitution of the US dollar. Most of these initiatives do not seek to overhaul the order of the global monetary system, but to solve specific problems countries encounter, such as liquidity shortage of USD, sanctions, transaction costs of multiple currency exchanges and transaction costs of cross-border payments. Thus, rather than a structural change, de-dollarization initiatives preserve the core of the current hierarchical IMS, while allowing countries to accommodate themselves to that order. This paper is organized into five sections. Following this introduction, Section 2 provides a literature review on the historical dominance of the US dollar and presents the theoretical framework adopted in this paper, which builds on the Global Credit View (GCV) to analyze diverse de-dollarization initiatives in the Global South. Section 3 presents the case studies selected for this paper, and Section 4 analyses them in comparison along our criteria and Section 5 summarizes our main findings.

Título do Evento: XVII Encontro da Associação Keynesiana Brasileira
Cidade do Evento: Maceió
Título dos Anais do Evento: Anais do XVII Encontro da Associação Keynesiana Brasileira
Nome da Editora: Even3
Meio de Divulgação: Meio Digital

Como citar

ZUCKER-MARQUES, Marina et al.. BELOW THE DOLLAR DOMINANCE: PATTERNS OF THE EMERGING FRAGMENTED, MULTIPOLAR AND MULTI-LAYERED CURRENCY WORLD.. In: Anais do XVII Encontro da Associação Keynesiana Brasileira. Anais...Maceió(AL) FEAC-UFAL, 2024. Disponível em: https//www.even3.com.br/anais/akb2024/898996-BELOW-THE-DOLLAR-DOMINANCE--PATTERNS-OF-THE-EMERGING-FRAGMENTED-MULTIPOLAR-AND-MULTI-LAYERED-CURRENCY-WORLD. Acesso em: 02/08/2025