The Impact Of The Current International Monetary System On Global Imbalances

The United States has experienced a persistent current account deficit over the past three decades,while central banks outside the United States have accumulated large amounts of foreign exchange reserves in the same period and invested primarily in US assets.Do these two basic facts mean that the demand for foreign exchange reserves in other countries will lead to global imbalances? Why do other countries need to accumulate a large number of US dollar foreign exchange reserves? These issues are closely related to the current world's largest "rules of the game"-dollar-led international monetary system.This paper focuses on two issues: one is the internal logic and concrete mechanism of the current international monetary system caused by the dollar standard,and the other is the concrete effect of the dollar standard on the global imbalance.In the theoretical analysis,using a lot of empirical data,this article first shows that the essence of the current international monetary system is the dollar standard,characterized by the hierarchical structure of international monetary system.Then,based on analysis of monetary payments balance the article builds the framework of sovereign credit currency as international Reserve currency,focusing on the internal mechanism of the current international monetary system which led to the imbalance of the global economy.Non-core reserve currency countries achieve stable economic growth through the accumulation of foreign exchange reserves,which is a rational choice under the current international monetary system.To meet the non-reserve currency countries' increasing demand for international reserve currency,the reserve currency can only supply by using current account deficit instead of long-term net capital outflow,which led to global imbalances;Under the hierarchical structure of current international monetary system,in order to achieve their own maximum interests,the core reserve currency countries and the secondary reserve currency countries gambled,the results leading to further deterioration of the global economic imbalances.Finally,the author analyzes the inherent mechanism of the virtual economy and the dollar circulation,which make the US current account deficit continue to strengthen under the current international monetary system.The United States,by virtue of its dollar-based status,has developed a virtual economy to trade in virtual currencies for the "trade dollars" held by non-reserve currency countries to provide a low-cost source of financing for the US current account deficit.“Output US dollar for trade deficit,virtual asset to recover dollars,"this US dollar circulation model makes the US current account deficit continued to strengthen.In the empirical analysis,this paper selects panel data of 125 countries for 45 years,and uses the fixed effect model to analyze the impact of the demand of foreign exchange reserve,the demand of foreign exchange reserve and the demand of non-USD reserves on global imbalance,from the long-term static perspective and short-term dynamic perspective.Empirical results show that the global demand for US dollar foreign exchange reserves have a significant impact on global imbalances.By combining theory and empirical research,the paper found that the dollar-based current international monetary system is an important cause of global imbalances.It was also found that:(1)The main feature of the global imbalances is that the global current account deficit is mainly concentrated in the United States on a large-scale for long duration.The overall trend of global imbalances scale shows a twisting upward trend.Although the scale contracts in 2007,it remains high.Deficit countries are increasingly concentrated in several countries,especially the United States,from 1970 to date.The United States is almost always the largest deficit country,while surplus countries are relatively scattered.(2)In the dollar-based international monetary system,the dollar is the most important international trade,accounting and settlement currency,and the most important denominated currency for international financial asset transactions,and the world's most important official reserve currency.It's essential characteristic is the dollar dominance.The US dollar standard has the inherent shortcomings such as unrestricted supply of US dollar reserves,incompatible system,inherent inequality of interests,lack of effective global governance mechanism,and so on.(3)The new international division of labor led by the dollar privilege directly affects the balance of international trade.By virtue of its central position as the international reserve currency,the United States only needs to "produce and operate the dollar industry" to absorb economic resources from around the world to support its own economic development.Other non-monetary center countries,for hedging and trading needs,can only use the real resources in exchange for US dollar reserve assets.In this pattern of interest,the global labor division gradually follows the trend that the United States becomes "currency center" while non-reserve currency countries "resources and commodity production base".In this new international labor division,the dollar standard stimulates two impulses.First,non US countries,to gain reserve currency,tend to export commodities to the United States.Second,the United States,which is a currency central country,tends to "produce" more dollars in order to procure resources from other countries,The result of the impulse is global imbalances.(4)Under the current international monetary system,the non-reserve money countries' increasing demand for US dollar reserves is the deep-seated institutional factor leading to global imbalances.In the current international monetary hierarchy,the game results of the core reserve currency countries and the secondary reserve money countries further aggravate the scale of this imbalance,and the development of the US virtual economy and the dollar circulation caused this imbalance to continue to strengthen.(5)Both the long-term static perspective and the short-term dynamic perspective show that a country's increasing demand for foreign exchange reserves will lead to an expansion of the current account surplus or a reduction in the deficit.The increasing global demand for US reserves will lead to significant increase of US constant account deficit;the global demand for the secondary reserve currency has little effect on the current account of the secondary reserve currency countries.