The Global Currencies Conundrum

by John Ryan (Volume editor)
©2015 Edited Collection VI, 149 Pages


This book discusses the emergence of a multi-polar currency system. With the US Dollar’s hegemony as global reserve currency in question, it examines the role of the Federal Reserve in its decline, the emergence of the Euro in a multi-polar currency system and the Chinese influence in this most important policy arena. China’s concerns about its US Dollar reserves are being amplified by the low returns of some of its investments in the United States. Today’s reserve currency system effectively results in China lending to the US at very low interest rates.
China needs to diversify out of the Dollar and it is this monetary policy that will fundamentally change the global currency scenario. China has been supportive of the Euro since its creation and is also lending support to the IMF’s special drawing rights. At the same time, Chinese policy targets the internationalisation of the Renminbi and with that the creation of a multi-polar monetary order.

Table Of Contents

  • Cover
  • Title
  • Copyright
  • About the author(s)/editor(s)
  • About the book
  • This eBook can be cited
  • Contents
  • Introduction
  • 1 ‘Currency Wars’ Between the US and China: Has Europe Enough Monetary Power to Act as a Broker?
  • Introduction
  • Conceptualising Europe’s and China’s monetary power
  • The ideational impact of the Euro in the third face of power
  • The French push to enhance EMU’s monetary power in the second face
  • Conclusion
  • References
  • 2 The Role of the Euro as a Global Currency After the 2008 Crisis
  • Introduction
  • Has real convergence increased between Euro area economies, from the launching of the Euro until the crisis of 2008, according to the OCA theory?
  • The impact of the current financial and economic crisis on Euro area members
  • Reforms adopted since the beginning of the crisis
  • Has the Euro been affected in its international role as a global currency by the crisis, or by the way the crisis was dealt with by Member states and European institutions?
  • Future development of the debt crisis
  • Conclusion
  • References
  • Appendix
  • 3 China and the Global Role of Currencies
  • Revisiting the Asian financial crisis of 1997
  • Scenario 1: The decline of the US Dollar as the global reserve currency
  • Scenario 2: The Euro gains strength slowly in a turbulent world
  • Scenario 3: Will the Renminbi become a reserve currency
  • Scenario 4: Super-sovereign reserve currency – A nice theoretical debate
  • Conclusions
  • 4 The Battle for the Euro! China’s (Information) Strategy to Steer Market Sentiment in Favour of the Single Currency
  • Introduction
  • The Record of China’s Informational and Financial Support to the Euro
  • China welcomes the arrival of the Euro
  • China does not believe in the ‘Euro-break-up’ theory
  • China’s public relations support to the Euro
  • China saves the Euro in its moment of need
  • China supports the Euro by word and deed
  • Explaining China’s support to the Euro
  • China’s confidence in European integration
  • Diversification of foreign reserves
  • Preserving the value of Euro-denominated debt
  • The importance of the European market
  • Increasing the political influence in Europe
  • The desire for a G-3 world
  • Conclusion
  • References
  • 5 Alan Greenspan and the Decline of the Federal Reserve’s Dollar Policy
  • Introduction
  • How Greenspan destroyed the American dream
  • Greenspan’s Federal Reserve responsibility for subprime collapse
  • Greenspan – Don’t blame me
  • Conclusions
  • Conclusion
  • Notes on Contributors
  • Index

| 1 →


This book discusses the emergence of a multi-polar currency system.

The first chapter examines the implications of the creation of the Euro and its role as a global currency in today’s multi-polar system of reserve currencies. In ‘Currency Wars’ Between the US and China: Has Europe Enough Monetary Power to Act as a Broker?, Professor Otero-Iglesias discusses the role of the single currency not only as a reserve currency in a multi-polar system, but also as a real contender against the US Dollar’s hegemony. Professor Otero-Iglesias discerns where the Eurozone stands within the current framework of increased ‘currency wars’ between the US and China, and whether it is able and willing to change the current International Monetary System to a more coordinated and managed exchange rate regime, as repeatedly stated. Professor Otero-Iglesias argues that the Eurozone has made certain progress in preference-shaping and agenda-setting, but not in decision-making which is still cumbersome. France, for instance, has certainly made some efforts, with the support of China, to start the debate on the transformation of the current Flexible-Dollar-Standard. However, by not being politically united, the Eurozone precludes any possibility to force the US to enter into a compromise and relinquish the ‘exorbitant privilege’ that the centrality of the Dollar offers them.

The second chapter examines The Role of the Euro as a Global Currency after the 2008 crisis. Professor Rinaldi investigates to what extent the 2008 crisis and its follow up has undermined the Euro’s emerging international reserve currency status and examines whether there was enough real convergence between Eurozone economies before 2008 and draws lessons on the optimality of the European Monetary Union (EMU). It also analyses reforms proposed to tackle the sovereign debt crisis in terms of surveillance and governance rules, and questions its impact on the international role of the Euro. Through a first part devoted to the analysis of business cycles evolution since the launch of the European single currency, it will ← 1 | 2 → determine whether the criteria of the Optimum Currency Area theory were fulfilled by the Eurozone until 2008; then the chapter goes on to analyse the impact of the financial and economic crisis on Eurozone members, from an internal angle (has the Euro protected the Eurozone economies, or not, and in which respect?), as well as from an external angle (has the Euro been affected in its international role as a global currency by the crisis, or by the way the crisis was dealt with by member states and European institutions?). Reforms in European governance and the creation of tools needed to supervise the European banking and financial system and to reinforce the surveillance of budgetary positions in member states are examined. Scenarios of future developments of the sovereign debt crisis are then discussed, as well as pros and cons of exiting the Eurozone, especially for debt-laden countries. Finally, as a lesson of this crisis, how should European governance evolve in the near future?

In the third chapter, China and the Global Role of Currencies, Professor Ryan examines four scenarios regarding the global currency regime of the future and the Chinese influence in this most important policy arena. The focus is on the US Dollar decline as the Reserve Currency, on the Euro, on the potential of the Renminbi to become a Reserve Currency, and on the IMF’s Special Drawing Rights (SDRs). The projected speed at which the Dollar will lose its predominant position as a global reserve currency depends on the US Treasury fiscal policy. Chinese and European leaders frequently emphasise the US responsibilities for the stability of the Dollar as the premier reserve currency. It is unclear whether the diversification benefit would be enough to make reserve managers willing to hold SDRs instead of Dollars (or Euros), unless the SDR takes a prominent role as unit of account or medium of exchange in global trade and financial transactions. The use of an SDR in international trade and finance would only come about slowly. China is actively engaged with Eurozone governments and EU institutions, and the latter have courted and welcomed Chinese intervention in financial markets, setting in motion an active monetary diplomacy. The preservation of the Euro has become not only a major EU objective, but it is also instrumental for Chinese leaders to achieve two overarching policy-goals: the internationalisation of the Renmimbi and the emergence of a multi-polar monetary order. ← 2 | 3 →

The fourth chapter examines The Battle for the Euro! China’s (Information) Strategy to Steer Market Sentiment in Favour of the Single Currency. Professor Otero-Iglesias presents a detailed recompilation of China’s informational and actual support for the Euro since its creation until present days. It will show how Chinese policymakers stepped in to sustain the value of the European currency every time it was under considerable market pressure during the 2010–12 Eurozone sovereign debt crisis. The strategy has been two-fold. On the one hand, the Chinese leadership has used public statements or commentaries in the state-owned media to show their confidence in the single currency, and on the other, they have accelerated their diversification moves out of the US Dollar and into the Euro. China’s behaviour has changed market perceptions of the Euro, as recognised by financial heavy weights such as George Soros, who does not shy away from claiming that China effectively saved the Euro. The second part of this chapter is more analytical. The main aim is to explain why China is supporting the Euro and the European integration project at large. Several reasons are explored. China needs to diversify out of the Dollar, so this is a good opportunity to accelerate this process. China has already over $800bn in Euro-denominated assets; hence it needs to protect the value of its assets. The EU is China’s most important market. Therefore it is in China’s own national interest to stabilise the European market. Finally, this crisis is a good opportunity for China to present itself in front of its European counterparts as a reliable and trustworthy partner and consequently it should be granted market economy status and more saying in global economic and financial affairs.


VI, 149
ISBN (Softcover)
Publication date
2014 (October)
currency system monetary policy monetary order
Oxford, Bern, Berlin, Bruxelles, Frankfurt am Main, New York, Wien, 2014. VI, 149 pp., 5 tables, 4 fig.

Biographical notes

John Ryan (Volume editor)

John Ryan is Research Associate at the Von Hügel Institute of St Edmund’s College, University of Cambridge. He was a fellow at the Centre for International Studies, LSE and the EU Integration section of the German Institute for International and Security Affairs, Berlin, Germany. Professor Ryan works as a senior adviser for private and public sector organisations.


Title: The Global Currencies Conundrum
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158 pages