Research On The Reform Of International Reserve System Under Post-Crisis Era

It has been five years since the outbreak of the international financial crisis. The academia has been rethinking it profoundly during the post-crisis era. Experts are considering the existing international reserve system, and trying to find the ways forward from the reality.In fact, Charles · P · Kindleberger ever asked whether dollar’s domination in international reserve system declined or not seventeen years ago. At that time, Kindleberger introduced this question in the background of Asia financial crisis in 1997. There is few people like Kindlelerger who put the fate of dollar together with Asia issue. However, things changes nowadays. In the post-crisis era, when people think about the reform of international reserve system, they normally bring the two things together.The discussion of the reform focuses on three issues. The first issue is whether the reserve system is based on one currency or several currencies. The second issue is whether the reserve system should be based on a sovereign currency or a super-sovereign currency. The third issue is whether the dollar will be replaced by another currency. The three issues point to the question of maintenance of U. S. hegemony. During the way that monetary system evolves from Bretton Woods System to Jamaica System, there is one thing for sure——dollar is an important tool which the U.S. used to service its hegemony. Though Bretton Woods System collapsed, dollar’s domination is still on. Dollar still acts as the most important settlement currency as well as investment currency and reserve currency.However, in the post-crisis era, the circumstances change in the ways which inspire people to expect the reform of international reserve system. In the theory respect, people think twice about neoliberalism. In the practice respect, for the sake of improving employment and economic growth, the importance of the real economy is recognized by the U. S. policy maker. Therefore the reform of international reserve system is related closely with the regional integration in international trade. Meanwhile, dollar’s stability is weakened, and its domination is challenged by emerging economies due to their strengthened economic power. Still, dollar’s status is on because of the lagging of the world shape, the conflicts between the candidate countries and the strong network externality.However, the fact that dollar maintains its stand does not mean there is nothing to do with the reform of international reserve system. The flaws of the system together with the change of world shape clearly indicate that the Dollar Standard is confronted with great challenges. U. S. government is implementing measures to deal with the challenges to defend its exorbitant privilege obtaining from dollar’s domination.Among the theory patterns explaining how U. S. deal with the challenges, Hegemonic Stability theory hold by Kindleberger, Gilpin and Keohane is a convincing one. They argue that hegemony is one kind of public goods which can provide instability for the world. They know exactly that the decline of hegemony can be foreseeable. Therefore, the most realistic choice for U. S. is to maintain dollar’s domination as long as possible.Since U. S. is based on America and winged by Pacific Ocean and Atlantic Ocean, its strategy during the post-crisis era is clearly reflected in two aspects. Firstly, U. S. has injected a big amount of dollars into the economy and shifted the Crisis outside U.S. through QE. Secondly, while weakening euro further, U. S. focuses its resources to carry out the strategy of integration of finance and trade in Asia-Pacific region. The particular plan is to push TPP ahead in order to maintain U. S. domination in this region. The essence of the strategy is tying Japanese yen and beating RMB to reshape the competitive advantage of U. S.. This strategy has its precedent in history. During the years in Bretton Woods System, U. S. has focused on its resources to construct its global hegemony through the integration of finance and trade with the vehicles of Bretton Woods System and GATT.The fact that U. S. pushes TPP ahead indicates that RMB’s internationalization has been a key issue of the reform of international reserve system. At least, RMB becomes an important factor of the reform. Frankly speaking, there are some flaws for RMB to be a key currency which means that its internationalization should be based on the domination of dollar instead of replacing dollar. Actually, RMB has been an important settlement currency, especially in Asia. And there are great improvements obtained for RMB as an investment currency and a reserve currency. The internationalization of RMB enhances the equality and stability of the international reserve system.Creating a super-sovereign reserve system is the direction of the reform and the ideal target as well. Since there is a long way to go, we will go step by step. In the short term, the international community should strengthen supervise on U.S. monetary policy and enhance regional financial cooperation. In the medium term, we should shape a tri-polar reserve system based on dollar, euro and RMB. In the long term, we will finally create a super-sovereign reserve system.