Research On The Sustainability And Governance Of The Contemporary International Monetary System

Occuring in2008-2011, the U.S. subprime mortgage crisis and the ensuingEurope’s sovereign debt crisis gloomed the prospects of the world economy growth.These crises resulted from loose monetary policy and fiscal policy of the maininternational currency issuers since the turn of the century. But after the economic crisis,these countries carried out large-scale economic stimulus packages and financial bailoutplans, which failed to solve the fundamental incentive dilemma while increased thelong-term public debt burden, eroded the global confidence on contempraryinternational currencies. The internal defects of the international monetary system,accompanied by global imbalances,are the unsolved issues of the world economicsystem and the root of the economic crisis. And the existence of the generalized "Triffindilemma" is the reason why the current international monetary system cannot besustainable. Taking the sustainability of the international monetary system as theresearch object, this study analyzes the inherent instability of the world with a singleinternatioinal currency, the relationship bettwen the governance structure of theinternational monetary system and the evolution of global imbalances, as well as factorsof the international currencystatus.First of all, based on the stylized facts of the current crisis of the internationalmonetary system and literature studies, this paper establish a general theoretical modelof international currency as both medium of exchange and store of value. Through theanalysis of inter-temporal equilibrium and simulation of different policy scenarios ofinternational currency issuer, the two country model reveals that the collapse of theinternational trading system is derived from drained trade surplus of the internationalcurrency user, and the breakdown of the international financial system is because theexcessive accumulation of foreign debt makes international currency issuer lostconfidence in its solvency. Secondly, on the basis of the two basic models, this paperintroduces the scenario of partial currency internationalization of the undevelopedcountry and also a three country world, enriching the supply form of internationalliquidity, and gauge the impacts of governance structure change and shrinking oforiginal interntional currency isser on the sustainability of the international monetarysystem and global imbalances. Finally, the history of the gold standard, the Bretton Woods system and the post Bretton Woods system are empirically studied to sort outfactors of international currency status.Basic conclusions drawing from the paper include:(1) the essence of thegeneralized "Triffin dilemma" is that the international currency issuer can hardly avoidthe conflicts between domestic and international goals, which makes it difficult tosustainably provide international liquidity;(2) in addition to the strength of a country’seconomy, financial development is also a important determinant of internationalcurrency status. The comparative advantage of providing financial products canfacilitate the backflow of international currency and finance the trade deficit to finishrecycling;(3) a framework of monetary “competition–cooperation” can help improvethe sustainability of the international monetary system since such governance structurecan alleviatethe fiscal burden to provide reserveassets by a single international currencyissuer and thus be more adapt to the needs of the world economy growth. In addition,several policy implications related to the reform of the international monetary system,improvement of the global financial governance, coordination of global macroeconomicpolicies, development of the China’s financial market and internationalisation of theRenminbi are also pointed out.