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The Global Currencies Conundrum

Edited By John Ryan

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.
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2 The Role of the Euro as a Global Currency After the 2008 Crisis

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Through a first part devoted to the analysis of business cycles evolution since the launching of the European single currency, we seek to determine whether the criteria of the Optimum Currency Area theory were fulfilled by the Euro area until 2008; then the chapter goes on to analyse the impact of the current financial and economic crisis on Euro area members, from an internal angle (has the Euro protected the Euro area 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 the 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 Euro area, especially for debt-laden countries. Finally, as a lesson of this crisis, how should European governance evolve in the near future?

Introduction

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