Next Gen Global Currency

8/6/2019 Next Gen Global Currency

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r e a tr / a s k e d s o m e o f t h ew o r l d ' s k e y e x p e r t s :

" T e n y e a r s f r o m n o w , w h a t w i l l b e t h en e x t g r e a t g lo b a l c u r r e n c y ? "


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The dollarwill reemerge.DAVID C.MULFORDU.S. Ambassador to India andformer Undersecretary farInternational A ffairs, U.S. Treasu ry

hat goes around comes around. We have beenaround this loop before. The dollar will reemerge asthe U .S. economy restores its position in the world.

The dollar now,infiftyyearsthe yuan.

U.S. dollar willcontinue to bethe dominantinternational currency,EDWIN M . TRUMANSenior Fellow. Peterson Institute tor International Econo mics

T he U.S. dollar will continue to be the dominant interna-tional currency in ten years. It is still tlie only true inter-national currenc y: that is one that is used by parties thatdo not include U.S. residents. Do you see euro-denominatedbonds issued in New York as dollur-denominaled bonds areissued in London? Looking just at reserve holdings and con-sidering only developing countries as the most relevantgroup, it is true that since the first quarter of 1999. the dollar'sshare has declined 10.6 percentage points in value terms, butin quantity terms the decline has been only 6.8 percentagepoints and the dollar's decline was at a faster pace hefore thedollar's peak in the first quarter of 2002 than since then. Tbedollar's quantity share in the reserves of developing coun-tries is currently 38.5 percentage points ahead of the euro.At the recent pace of adjustment which has slowed sinceearly 2002 during a period of substantial dollar depreciation.it would take the euro twenty-four years to catch the dollarand in ten years it would still be more tban 15 percentagepoints behind.

D I N D K O SfVtanaging Director and Head of Central Banks and Sovereign Wealth Funds,Morgan Stanley Asia Limited, and former Executive Vice President, MarketsGroup, Federal Reserve Bank of New York

T he U.S. dollar will remain the primary reserve currency ten years from now. Over a longer timehorizon, say thirty or forty years, the next great currencybarring calamitous policy mis-slepswill be the Chinese yuan. The longer period will be required to liberalize the Chineseeconomy, build up efficient money and capita! markets, and foster the deep and liquid marketsconsistent with reserve currency status.


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^miMM iMiThe United States will comeroaring back.J EF F R EY E . G A R T ENJuan Tr i ppe Pro fesso r o f In te rna t i ona f T r a d e a n d F i n a n c e ,Yale S c f i o o l o f M a n a g e m e n t

I expect thai after some setbacks the United States will comeroaring back. All the talk about the grow ing econom ic pow erof the European Union and China has some merit, but it isvastly overblown. The American economy will remain dom-inant, the U .S. capital markets the widesl, deepest, and mostinnovative.The dollar is currentlyweak because ofmajor blundersby the Fed,

ST EVE F O R B ESPres iden t and C E O , Forbes Inc .

T he dollar will be the great global currency ten years fromnow. It is currently weak because of major blunders bythe Federal Reserve, which has heen printing too manygreenbacks since 2004. That exeessive m oney-making is whyall commodities have surged. In md-2()O3 oilwas selling ataround $23 a barrel. Even with India, China, and central andeastern Europe booming and even with political turmoil in theMiddle East. Venezuela, and Nigeria, there is no way the realprice of oil and most other commodities should have almostquadrupled. The political fallout from rising inflation willforce the Fed and the next president to restabilize the belea-guered buck.Then the dollar will again be king and all the talk of theneed to diversify reserves into other currencies will fade away.In ihe meantime, though, the world will experience the unpleas-ant consequences, poliiically and economically, of the Eed'smistakes.

The dollar and theeuro and the yuan,

KARL OTTO POHLP a r t n e r , Sa l . Oppen f i e lm J r . &

Cie . , and fo rmer Pres iden t .Ge r m a n B u n d e s b a n i i

Both the dollar and the euro,B A R R Y E I C H EN G R EENPro fesso r o f Econom ics and Po l i t ica l Sc ience ,Un ive rs i ty o f Ca l i fo rn ia , Be rke ley

I nternational eurrency status is not a winner-take-all game. Only in exceptional periods likethe era of U.S. economic hegemony after WorldWar II, when only the United States had deep andliquid financial markets open to the rest of theworld, has a single currency dominated interna-tional transactions. To be sure, incumbency is anadvantagein politics and in the competition forglobal currency status alike. But tenyears fromnow is not too soon toimagine a situation wherethe dollar and the euro play roughly comparableglobal roles. My cho ice, therefore, is both the dol-lar and theeuro, which are likely to cohabitthrough the first half of the twenty-first century,after which they may be challenged by the yuan.

The dollar and the euro.PAUL DEROSAPrincipa l , Ml L u c a s M a n a g e m e n t C o r p .


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T h e dollar will stillbe t h e preeminentglobal currency.

R I C H A R D N . C O O P E RMaurits C . Boas Professor of fnternatianalEconomics,Harvard University

W hile the euro will grow in relative importance, espe-cially in new members of the European Union andnearby trading partners, the dollar wilt still be the pre-cniiiiuni global currency In bt)th official and private hands adecade from now. reflecting not oniy institutional inertia butalso the strength of U.S. capital markets and the relativedecline of Europe in the world eeonomy.T h e greenback.P E T E R B . K E N E NWalker Professor of Economics a n d International FinanceEmeritus, Princeton University

T h e dollar.

T A D A O C H I N OSeniorAdvisor. Nomura Research Institute, Ltd., a n d formerPresident. Asian Development Bank

T h e dollar will remainfirst among equals,HENRY J.AARONProgram Director. Economic Studies Program,Brookings Institution

A lthough other currencies will gain in importance, the dol-lar will remain first amon g equals because the U .S. econ-omy will remain the most Oexiblc and most secure inthe world.T h e dollar ^s dominance willgradually diminish,MICHAEL J . BOSKINProfessor of Economics a n d Hoover Institution Senior Fellow,Stanford University

T en years from now, the U.S. dollar will still be the majorglobal currency, although its dominance will continue tobe gradually diminished. The problems currently beset-ting the United States financial system will have abated,although sim ilar problems affecting other financial systems arenot yet fully transparent either. 1 expect U.S. growth to againoutpace Europe and Japan over the next decade, as the moredifficult demographic conditions in Western European coun-tries will combine with their high-tax welfare states to slowgrowth. Demog raphy and minimal immigration will continue toslow Japan.

However, the fraction of global commerce invoiced inother major currencies, especially the euro, will grow. Witnessthe Areva nuclear deal with the Chinese payable in euros. It ismore likely than not that real oil prices and the U.S. currentaccount deficit as a share of GDP will decline. Nonetheless,the dollai" will still be the most important international mediumof exchange, and dollar-denominated assets will still be a rel-atively safe store of value, especially given political risk inmuch ofthe developing world and high taxes in Europe. But ifthe United States embarks down the path to a high-tax, bloatedwelfare state, the outlook for U.S. growth and the dollar willworsen.

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The dollar n o w , t h e yuan in thirty.MARC LELANDPresident. Marc E . Leiand and Associates, and formerAssistant S ecretary for International Atfairs, U.S. Treasury

T he dollar will have problems. The euro will play a moreimportant role bul the dollar will still be the major worldcurrencynot the "great global currency" but greaterthan any o ther If you asked me to predict for thirty years fromnow, 1 might lean toward the yuan.The US, dollar.A N N E O . K R U E G E RProfessor of International Economics, School of AdvancedInternational Studies, Johns Hopk ins U niversity,and former First Deputy Managing Director,International Monetary Fund

T he U.S. dollar is very likely to be the major currency tenyears from now. While reserve holdings will probably beless concentrated in dollars than currently, the conve-nience of using the dollar as the common denominator fortransactions is important, and likely to mean that internationaltransactions will still be denominated predominantly in LI.S.dollars. That, in tuni. means that the attractiveness of holdingU . S . dollars as a medium of exchange, along w ith the impor-tance ofthe United States in the world economy, will continueto make the dollar the preeminent currency.

All t h e options are poss ibilities!JIM O'NEILLHead of Global Economic Research, Goldman Sachs International

A ll the options are possibilities! As som eone w ho has beenquite negative on the dollar for the past decade, it is obvi-ously tempting to conclude that the dollar will be "downand out" and it will lose its predominant reserve currency sta-t u s . How ever, many ofth e factors that have plagued the UnitedStates and the challenges facing the dollar are starting toimprove, so I think it is dange rous to write off the buck, espe-cially when we read about rapper Jay-Z and model GiselleBndchen both w anting the euro.

If the desire for the euro has spread that far, then perhapsthere is no one else left to buy it! Amongst other currencies.

clearly the euro has already grown in importance, and it seempretty inevitable that Chinese yuan usage is on the rise. So suspect the future will bring something between "some formaor informal currency bloc " and "foreign exchange c haos ." As friend of the active investor. I sincerely hope the latter, or something close to it.

We are in an era of significant relative chan ge. As 1 havwritten for years, there is dramatic need for major reform of thInternational Monetary Fund, the World Bank, the G7 and thG 8 . If w e get dramatic refomi in the next ten years, then perhapa more stable foreign exchange environment might emerge, buwithout that relatively simple observab le need to be fulfilledwhy would anyone expect stability?

/ expect t h e U . S . dollar t o remain thdominant international curreney.JOHN WILLIAMSON

Senior Fellow, Peterson Institute forInternational Economics

I expect the U.S. dollar to remainthe dominant international cur-rency for a gt)od bit longer thanthe next ten years. There is a greatdeal of inertia built into a cur-rency's international role. This isprimarily because the very natureof money means that one wants tohold the same monetary unit as the people with whom onwill do most business, so an international money is onlreplaced when the need to do so becomes overwhelmingUnless the United States were to generate a new inflationwhich is a low -probab ility even t, there Vv-ould seem little motivation to prompt a flight from the dollar by official holders. Ithe dollar depreciates some m ore in real terms against the eurothe chances are that it will recover that ground in the futureThe probability is much greater of a real long-run depreciatioagainst several ofthe Asian cuiTencies. but the chances of central banks profiting from that will have vanished long beformost central banks think of trying to profit from it.


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T he dolanI don't see anyother contenderson th e h orizon.

S US AN M . P HI L L I P SD ean and P ro f es s o r o t F inanc e , George W as h i ng t on U n i v e rsi tySchool o t Bus iness , and former m e m b e r , B oard o f Gov e rno rs ,Fd ra i R es e rv e

I choose the U.S. dollar as the next great global currency tenyears from now, not for patriotic reasons, but rather becauseI don't see any other contenders on the horizon. In fact, ithink it would be good to have multiple currencies whichcould be characterized as great global reserve currenciesbesides the U.S. dollar.In recent years, the dollar has become particularly sensitiveto oil prices, and as the w orldwide demand for oil hassurged pushing the price of oil up.the dollar has plumm eted. But U.S.authorities have not intervened toprop up the doUai' aitificially. Manyother countries do conduct theirmonetary policies in a way todirectly manage the value of theircurrency and I would not want torely on those policies to influenceU.S. exchange rates. A currencywhich floats is more reflective ofthe give-and-take of al! worldeconomies.Although the U.S. economy ischallenged in the short run, I believeits resilience will be evident in thelong run and the dollar will ulti-mately reflect that strength. Finally.there are a lot of dollars in circula-tion around the world, backed bythe good faith and credit of the U.S.government and i ts economymaybe not a good short-term bet,but definitely a good long-term bet.

In ten yearSy w e maysee only 70 perce ntfor th e dollar and 45pe rcent for th e euro.

HORS T S I E BE RTPres ienf -Em er i tus . K ie l Ins t i tu te for the W or ld E c o n o m y , an dHeinz N ixdor f Professor in European In tegrat ion and EconomicPol i cy , Johns Hopidns Univers i t y , SAIS Bologna Center

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Definitely th e dollar,IL SAKONG

Chai rman and CEO, Ins t i t u te torGlobal Econ om ics , and tormer Min is ter

of F inance, South Korea

T h e American dolanBORIS FEDOROV

G e n e r a l Pa r t n e r . U F G A s s e t Managemen t ,and f o rmer F i nanc e Min is te r , Russ ia

T h e /.5. dolkinP E DRO-P ABL O KUCZ Y NS KIFormer P r i me IVI in ister . P eru

he U.S. dollar will continue to be the major global cur-rency, but it will lose relative weight. In 2007, 86 per-cent of the total transactions in the international cu rrencymarkets had the U.S. dollar on one side of the transaction and37 percent the euro (yen and sterling 17 percent and \5 per-cent, respectively). Note that the sum of the percentage sharestotals 200 since two currencies are involved in each transac-tion. In ten years, we may see only 70 percent for thedollar and 45 percent for the euro.Total reserve holdings of all cen-tral banks. 65 percent in U .S. dol-lars in 2007. are likely to bereduced relat ively more, maybedown to 45-50 percent . Thisdevelopment will reflect the reduc-tion of the U.S. share in globalGD P from 27 percent today; it willmirror the geopolitical shift itifavor of Asia. Together with theshare of trade and capital Hows, ahigh share of world output is onefactor determining whether a cur-rency plays the role of the leadingcurrency. Anotlier important con-dition is that the currency is stable.If the U .S. Federal Reserve followsan expansionist and inflationaryline, if the stability of the U.S.banking industry is not a given.and if the long run is neglected byAmerican consumers andAmerican politics, the role of theU.S. dollar will decline more.


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The fathers of theeuro evidently d ida good job.

N O R B ER T W A L T ERC h i e t E c o n o m i s t, D e u ts c h e B a n k G r o u p

Nul even ten years old and he"s already allowed to playwilh the big boys! The fathers of the euro evidently dida good job. One particularly important factor was thepolitical backing for the euro. Fathering is important., but thehard part is giving birth. Excellent choices have been madein appointing the presidents and executive board mem bers ofthe European Central Bank. There was no honeymoon periodfor the new currency. Its international standing w as threatenedat the turn of the millennium.

As it approaches its tenth birthday, this European experi-ment still does not enjoy unbridled confidence of the citizensacross the euro area, not least because inflation is much higherthan the target level. However, the euro's appreciation goes onand on. This is one reason why international investors areincreasingly asking whether the time has come for a changingof the guard. The euro is on par with respect to denomination ofinternational bonds and is the world's number-one cash cur-rency. And its share in foreign exchange reserves and its statusas an anchor for exchange rates is rising. Doesn't this representan historic turning point in global currency relation.s^ust likethe situation between the world wars when the British poundwas dethroned by the U.S. dollar?My verdict is that developments during the next two orthree years will continue to feed such suppositions. The U.S .dollar will be weak., and portfolio rebalancing will continue.Looking ahead to 2020, there is no doubt that the military andpolitical might of the United States, its demographic vitality,and its ability to implement swift, effective structural changewill reinvigorate the dollar. The dollar will rise again, and itsrole as the world's leading currency will undoubtedly beunderscored.

The dollar by default,HUGH PATRICKR o e r t D . Calk ins Pro fessor Emer i tus o f In te rna t iona l Bus iness ,C o l u mb i a B u s i n e s s S c h o o l

B y default, the dollar will remain the dominant major currency ten years from now. The euro will probably play somewhat greater role, but much depends on how anhow well EU integration deepens. It will be premature ft)r thChinese yuan to play a major role; China may loosen its capital flow, foreign ex chang e, and other regulatory restraints buwill do so only gradually. London will continue to be, alonwith New York, a global financial market. And since Tokywill not challenge it, sterling may become more significanthan the yen. To some extent this is based on my expectatiothat the next U.S. president and administration will pursubetter economic and foreign policies than those of the passeven y ears.My money would be onthe US, dollar,D E S M O N D L A C H M A NRes iden t Fe l l ow, Amer i can En te rp r i se Ins f i fu te

M I y money would be on the U.S. dollar remaining thworld's great currency ten years from now. It is noihat 1 particularly like the dollar's long-run externafundamentals. Rather, it is that I dislike even m ore the w orldother major currencies" fundamentals.The euro is presently the m ain contender for displacing th

U.S. dollar as the world's principal reserve currency. Howevet)ne has to entertain serious dou bts as to w hether the euro wisurvive in anything like its present form ten years from nowCan one really expect either Italy or Spain to end ure the rigorof euro membership in the event of a major slump in theieconomies?Some observers dream that the Chinese renminbi mighemerge as a major global currency along with a resurgenChinese economy. However, they overlook the great fragilitof the Chinese banking system. They also turn a blind eye tthe collision course on which China faces the U nited States anEurope on trade issues.As for sterling and the Japanese yen, it would seem thathe sun has long since set on these currencies and that there arno glimmers of any dawn on their horizons.


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The U. S . dollar is the onlytrue global currency.S T E V E H . H A N K EPro tessor o f App l ied Economics . Johns Hopk ins Un ive rs i t y ;Sen io r Fe l low, Ca to Ins t i tu te ; and Cont r ibu t ing Ed i t o r , TIE

T he U.S. dollar is the only true global currency and willprobably remain atop that perch for the foreseeablelulurc. Som e years ago. economist Bob Mundell producedan impressive table which spans twenty-six centuries: "GreatCurrencies and Great Powers." The average life of tbe greatcutrencies is over three centuries. On tbat criterion, the dollarhas another century or two to go.Great currencies are diTicult to challenge. Their hallmarks

are stability and confidence. These are generated by large trans-actit>n domains (network externalities), monetary policy stabil-ity, the absenee of exchange controls, and the strength andcontinuity of the state issuing tbe currency.Tbe dollar outsbines its challengers on all counts, particu-larly liquidity. It isn't surprising, tberefore, that since tbe creditcrunch unfolded last year, there has been a surge in the i.ssuanceof Yankee bonds. That said, the dollar's supremacy might bechallenged if the United States continues down tbe road of cap-ital market sanctionsa subject dealt witb by Benn Steil andRoben E. Litan in iheir book. Fiiumci al S tutccraft .Just consider the fate of the British pound. W ben tbe pound

reigned supreme, even George Washington was allowed tomaintain an account at the Bank of England during theRevolutionary War. By the early 1900s. all that cbanged as tbepound became entangled in a plethora of exchange controls.Absent a "urther inerease in capital market sanctions, chal-lengers will remain ch allengers and the dollar will remain king.

We are at the dawn of the ag eof the bipolar currencies.M A K OT O U T S U M IPres ident and CEO. Japan Cred i t Ra t ing A g e n c y . Ltd . , ana fo rmerV ice M in is te r o f F inance fo r In te rna t iona l Af fa i rs , Japan

W hile the euro has been establishing itself already a keycLirrency rivaling the U.S. dollar, it is still laggingbehind the U.S. dollar as a reserve currency, a settle-ment currency, and an invoicing currency. It might not take adecade for the euro to rank with tbe U.S. dollar. We are at tbedawn of the age of the bipolar cunenc ies.

The alternatives will b e limited.W I LLI A M H . O VER H O LTOirec tor , RANO Cente r to r As ia Pac i f i c Po l icy

T be dollar will remain the most important global currency.It may well be considerably less attractive and less uniqueas a reserve and trade-denomination currency tban today,but the alternatives will be limited. Tbe European CentralBank may acquire a crisis-managemenl capability tbat is cur-rently unique to tbe Fed. but the euro will ust he finishing itstransition from today's collection of limited puddles of liq-uidity to becoming a deep sea of liquidity like the dollar.Tbe Japanese economy will be a far smaller proportion oftbe global economy than today, since everyone else is growingfaster, and it would take major changes in Japanese cuiTency

managem ent style for other countries to want the yen as a pre-dominant reserve.Tbe Cbinese yuan will probably be fully convertible bythen, but its banking system and n?gulators won't be ready for thereserve role. The other major players are unlikely to trust Bankof Japan or People's Bank for crisis management as mucb asthey trust the Fed and. prospectively, the European Central Bunk.So reserves and trade w ill be m ore diversilied but tbe dol-lar will be most im portant. A unified Asian currency remains afantasy. Finally, future U.S . administrations m ay have sou nderpolicies than the current one.

The European economies willdeteriorate much more thanth e U. S . economy.TA D A SH I N A K A M A EPres ident , Nakamae In te rna t iona l Economic Research

Ibelieve tbat a developing nation's currencyor even a bas-ket of currenc ies from an emerging bloc has no chance ofrising to global status in the coming decade. The globaleconomy is in for a turbulent ten years, given the troublescaused by the current credit crunch in America. The length ofthis economic mayhem will severely weaken emergingeconomies, making tbeir currencies unlikely candidates foraleading global currency.

The U.S. dollar may weaken, but retain its prominence inten y ears' time. T be euro is unlikely to replace tbe U .S. do llar asthe leading global eurrency because European econtimies willdeteriorate much more tban tbat of tbe United States in a few

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years' time. Indeed, discrepancies in economic growth andstrength within the diverse euro bloc may even lead to the euro'sbreak-up.The yen will not usurp the U.S. dollar either. Still, the yen

may take on a bigger role in the global economy, partly becausethe Japanese economy has been the least affected by the latestround of speculative credit expansion. What's more, Japan islikely to remain the one genuine economy with net savings, whichshould boost Japa n's relative position in the world and in turn liftits currency, though not enou gh to SLipplant the U .S. dollar.

The United States is bound t o remainthe most complete power.S I M O N S E R F A T YZbigniew Brzezinski Cfjair in Global Security a n dGeopolitics, Center fo r Strategic a n d InternationalStudies, andSenior Professor of U . S . Foreign Policy, O ld Dominion University

A lthough the unipolar movement is now over, the UnitedStales is bound to remain the most complete power inthe world during the coming decade. In the context ofan emerging m onetary m ultipolarity, this means that the U.S .dollar will leiiiain the preponderant global currency, notwith-standing the gradual rise of both the euro and the Chinese yuanthat may co mpe te with, but not substitute for, the dollar In andbeyond their respective areas of primary influence.

With regard to the euro, some informal E uro-Atlantic cur-rency bloc may well emerge late into that timefranie. includingmore transparent rules of engagement between the Fed and theEuropean Central Bankat the expense ofthe sterling which,like the yen, will noi have the will to abandon ties with the dol-lar as the global cutrency ot choice , but will also lack nationalcapacities needed to withstand the compelling monetary pullexerted by neighbors.

T h e dollar i s still t h e best b e t .D A N I E L G R I S W O L DDirector, Center fo r Trade Policy Studies, Cato Insfitute

A nybody who tells you where the value ofthe dollar willbe a week or a year or a decade from now doesn't knowwhat they're talking about. The dollar's future value andglobal status will be determined by hyper-efficient marketsresponding to underlying economic fundamentals.

Of a ll the m ajorglob alcurren cies, the dollar is still the bebet to remain the leading cuuency a decade from now. Eveafter its recent slide, the dollar remains by far the m ost populacurrency for international transactions. Nearly two-thirds oglobal central bank reserves a re held in dollars, and 86 percenof daily currency transactions involve the dollars.

While the U.S. economy has struggled of late. JapanChina, Britain, and the European Union all have their own economic baggage that will continue to hinder the rise of their curencies to global greatness.If the U.S. economy retains its underlying strengthsaopen and dynam ic economy, relatively low taxes, deep and liquid capital markets, flexible labor and product markets, and skilled workforcethe dollar will remain a great global curency. But if U.S. policymakers embrace punitive taxes oinvestment, unbridled spending, protectionist populism, newbarriers to foreign investment, inflationr)' monetary policand more Sarbanes-Oxley-style regulations, the dollar wideservedly lose its claim to greatness.

The U . S . dollar will remain the^Hndispensible currency.^'G I N A D E S P R E SSenior Vice President, Capital Research & Management C o

W hile the U.S. dollar is unlikely to regain the pre-emnence of its heyday, it will remain the "indispensabcurrency" well into this century.It would b e a mistake tounderestimate the United States,G E O R G E R . H O G U E TGlobal investment Strategist, State Street Global Advisors

T en years from now the dollar will be the world's princpal reserve and transaction currency, although its sharetotal international reserves will likely fall. The UniteStates will still be the world's largest, most productive, innvative, flexible andrelatively speakingtransparent ecoomy in te rms of corpora te governance , econompolicymaking, and political proces ses. Given the strength of institutions and dynamism of its culture, the United S lates wcontinue to be a very attractive place to invest, with U.S. firmi i l ' ' ' i ii_^^


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being highly competitive in emerging industries of th e twenty-first century: lite sciences, clean energy technologies, andnanotechnology to name a few.The Llollar will likely fall against the yen and emerging

Asian cunencics. but the United States will eventually restruc-ture medicare, and continued immigration will partially solvethe problems faced by Social Security. By 2018. China's econ-omy will have easily surpassed Japan's as the world's secondlargest, but will remain much smaller than that of the UnitedStates. Political and financial institutions in China will not besufficiently developed for the renminbi to replace the dollar,and the Asia/Pacific region will not meet the criteria for an opti-mal currency zo ne. And in Europ e, rising political tensions, anunfavorable dem ographic profile, and a lower potential growthrate than in the U nited S tates will be amo ng the factors inhibit-ing the euro's pre-eminence.Nothing is foreordained, und a low probability "tail ev ent"like a policy mistake or catastrophic terrorist attack cannot beruled out. But it would be a m istake to underestimate the Un itedStates.

What happens this year a n dnext will b e criticalR I C H A R D C . K O Oduel Economist. Nomura Research Institute

T he U.S. dollar will remain lhc top currency, but what hap-pens this year and next will be critical. During this period,the United States must bring the dollar down to the pointwhere a steady shrinkage of its trad e d eficit can be expected.At the same t ime, theUnited States must persuade oi l-producing countries to keep oil denominated indollars. Theformer is needed to dispel the concern that the United Statesis just printing money while producing nothing. The latter iscrucial because if the United States had topay for its oilimports in euros, the dollar could literally collapse.For the former, a Chinese announcement that the renminbiwill be moved up 15 percent from where it isnow. combinedwith a Japanese announcement that it will not intervene in theforeign exchange market as long as the yen remains within 15percent of where it is now. would be very helplul.For the latter, the in dation-wary Saudis must be persuadedlo keep their dollar peg even after a possible revaluation of theriyal. This is because if th e riyal-dollar peg is ended, the marketwill start thinking aboulthe imminent end of o il pricing in dol-lars, which could have devastating consequences for the world.

T e n years a r e t o o short for t h eeuro t o replace the dollar,CHILOInvestment Research Director. Ping A n of China AssetManagement (Hong Kong) C o . Ltd.

T he euro is vying with the U.S. dollar for the status of lead-ing global currency. It is being increasingly used in inter-national trade, and as the reserve currency and currencypeg for many countries' exchange rate regimes. But when itcomes to a change of guard, ten years are too short for it toreplace the dollar. The current international transactions, inboth current and capital accounts, are predominately denom-inated in U.S. dollars, an arrangement that cannot be changedeasily. Even looking longer than ten years into the future, U.S.military and political mighl, demographic vitality, and eco-nomic flexibility to effect structural changes will remain. Thedollar's worid-teading currency status will remain for the yearsto come.

/ d o not s e e the dollar shrinkingin absolute size.R O B E R T H E L L E RFormer Governor, Federal Reserve System

T he U.S. dollar will continue to be the dominant currencyin the global economy tenyears from nowwhethermeasured by transaction volume, global assets denomi-nated in that currency, or reserve asset holdings. I do not seethe dollar shrinking in absolute size in any of these categories.But given the current weakness of the dollar, there will bepowerful incen tives to diversify into other currencies. The incen-tive to diversify will be strongest ibr asset holdings, but muchless so for the execution of international transa ctions. As far as

transactions are concerned, habit and convenience have a muchstronger intluence than portfolio diversii1catit)n motives.Consequently, the euro will see much higher growth ratesthan the dollar in the various asset categories and also becomea strong second global reserve currency. That is. much of theincremental asset growth will be denom inated in euros. But theeuro will see only modest growth as a transaction currency.Other currencies such as the yen and yuan will play someroles at the periphery, but not become currencies in which third-party transactions will be denominated.

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T h e E u rThe next great globalcurrency is already the euro,C. FRED BERGSTENDirector, Peterson Institute torInternational Economics

T he "next great global currency" is already the euro. Global holdingsof euro currency already exceed g lobal holdings ot d ollars. The eurohas already passed the dollar as the currency of denomination forinternational private bond flotations.The d ollar will remain a great global currency indefinitely and it is imma-terial w hether the euro piisses it or simply moves up into the same range ofglobal m arket share. But history shows that the global roles of national cur-rencies reflect the magnitude of their underlying e conom ics. The dollar thus

dominated for the past century because it had no serious com petition-All this changes with the creation and maturation of th e euro. Buroland'soutput and financial markets are abou t as large as those of th e United States.Its external trade and monetary resources are considerably larger. We canthus expect the euro to move up alongside the dollar over the coming years.The result, at least until the Chinese renminbi joins the action over the nextseveral decades, will be a bipolar international monetary system.

/ expect t h eeuro t o take

i t s place withthe dollar.

JESSICA EINHORNDean, Nitze Sctiool ot Advanced internationalStudies, Jotins Hopkins University

T en years is a short time for a reserve curency to come of age. so it's premature tthink of Asia. The euro has been in the runing since the move to a single currency, and thEuropean Central Bank has proven its commiment to maintaining its integrity. With ECPresident Jean-Claude Trichet in the lead, anthe dollar retreating fora host of reasons outsidthe purview of the Fed. I expect the euro to taki ts place with the dollar as a currency orespected international value.

The euro i s acredible challenger.J E F F R E Y A . F R A N K E LJames W . Harpel Professor,Kennedy Sciiooi ot Government,Harvard University

Contrary to fevered popular speculation in the 1990s, thyen and the mark never had the potential to challengthe dollar as premier international currency: their homeconomies were smaller than that of the United States antheir financial markets less-well-developed and liquid thaNew York's.

The euro, however, is a credible challenger. Euroland roughly as big as the United States, and the euro has showitself a better store of value than the dollar. To be sure, rankings of international currencies change only very slowlAlthough the United States surpassed the United Kingdom economic size in 1872, in exports in 1915, and asa net creditoin 1917, the dollar did not surpass the pound as number-on


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international currency until 1945. In 2005, when Menzie Chinnand I used historical data on central bank holdings of foreignexchange reserves to estimate the determinants, even our pes-simistic scenarios did not have the euro overtaking the dollaruntil 2022. Thus we could not have asserted that the dollarwould be dethroned "ten years from now."

But the dollar has continued to lose ground. We have nowupdated our calculations, particularly to recognize that Londonis usuiping Frankfurt's role as the financial capital of the euro,notwithstanding that the United Kingdom remains outside ofEuropean monetary union. Now we find that the tipping pointcould come within the ten-year horizon: the euro could overtakethe dollar even as early as 2015.

The euro,J A C Q U E S A T T A L IPresident, PiaNet Finance, and formerPresident, European Bank forReconstruction and Development

The future reserve currencywon't be the dollar,EAMONN FINGLETONAuthor ot\n the Jaws of the Dragon: America's Fate in theComing Era of Chinese Hegemony (St. Martin's Press, Maroii2008) and In Praise of Hard Indusfries (Houg iiton Mifflin, 1999)

This is one of the great questions of economic history.There is no clear answer but a few things can be said: The future reserve currency w on't be the dollar. As a per-centage of GDP, the U.S. current account deficit is now closeto the 7.7 percent peacetime G reat Po wer record set by Italy in1923. Yet compared to Am erica's trade problems today. Italy'strade problems then were readily fixable (at least with II D uceat the controls). Am erica's trade imbalances are "baked in" andwill get worse before they get better.

With Brita in's trade deficits chasin g Am erica 's into thestratosphere, sterling is also an obvious has-been. The central bankers of the big surplus nations China andJapanhaven't the slightest wish to fill the gap because theyrightly fear losing contrt)! of economic policymaking. Showbo ating bureaucrats in Brussels and Frankfurt m ayhave ambitions for the euro but they will be restrained by themore export-minded Euroland member statesparticularlyif/when the dollar and sterling become fully right-sized.

All that said, the best guess is that the euro will increasinglytake over in international contracts and commodity pricing, andin an effort to forestall total chaos, the East Asians will feel oblig-ated to join the Europeans in a Euro-Asiatic reprise of the snakein the tunnel. M aybe it should be called the dragon in the tunnel!

There^s some chance thatitll be the euro,MENZIE D. CHINNAssociate Director, Robe rt M. La Follette Schoo l of Public Affairs,Department of Economics, University of Wisconsin

Most likely the U.S. dollar will renKiin the global cur-rency, but there 's some chance that i t l l be the euro ,I especial ly i f mac ro pol icy cont inues to be as i rrespon-sible as it has been over the last seven years.The euro,CHRISTOPHER J.S. GENTLEDirector, Deioitte Research Europe

The eurOy for sure,MAYA RHANDARISenior Economist,

Lombard Street Research


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The Chinese yuanfor sure.

GARY HUFBAUERReg ina ld Jones Sen io r Fe l low,Pe te rson Ins t itu te fo r In te rna t iona l Econo mics

The next great currency? The Chinese yuan for sure. And asdecoration. I expect Chinii to sponsor an Asian MonetaryFund, to ensure that Shanghai rivals New York and London asa global financial center, and to add gold alongside dollars andeuros in its foreign exchange reserves.

The next great global currencyis likely to be the yuan.M U R R A Y W E I D E N B A U MMal l ink rod t D is t ingu ished Un ive rs i t y Pro fessor ,W ash ing ton Un ive rs it y in St . Lou is

T aking ihe question literally, the next great global currency islikely to be the yuiin. That assu mes that the U.S . dollar and theeuro will continue to be the dominant world currencies andthat sterling and the yen will also be significant players.Becau.se I do not e.xpect the rapid rise in the Chinese economyover the coming decade to be m atched by a comparable expansionof the Middle Kingdom's tniiincial infrastructure. 1 do not foresee theyuan replacing the dollar or the euro in world cunency niarkets.

The yuan,propelledby Chinaos sustainedprom inence in internationaltrade and investment,CHARL ES WOL F , J R .Sen io r Economic Adv ise r and Corpora te Cha i r inIn te rna t iona l Econ omics and Pro fessor ,Rand Gradua te Schoo l o f Po l icy Stud ies

Itake as a premise that a "great world currency"" is onthat, for a combination of precautionary and transactional motives, constitutes a large part of the foreigreserves by their principal ho lders including central bankcorporations, and others. Currencies that qualify will tento be closely, though not perfectly, correlated, with thospredoininating in international trade and investment transactions.

The dollar has been and is the principal great worlcuiTency. Appioxim ately tw o-thirds of foreign reserves arcurrently held in dollars, with the remainder consisting oeuros, sterl ing, and yen. The dollar proport ion hadecreased in recent years by perhaps 10 percent, with moof the corresponding inerease registered in euros. By 201rd expect the dollar's share to decline perhaps a further or 10 percent. The next gieat world currency whose holdings will rise to absorb some of the U.S. decrea se is liketo be the yuan, propelled by China's sustained prominencin international trade and investment. This prognosis presumes that within this time period, the yuan will havbecome fully convertible on capital account, as it already on its cunent account.

The additional great world currency is both a refletion of, and a contributor to, the so-called m ulti-polarity international affairs.

1 41 U


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:.ii:?fi^::iir'>a'S o m e d e f i n e d o j i n f o r m a lm u l t i - c u r r e n c y s y s t e m O r f o r e ig n e x c h a n g e c h a o s

A multilateral currencysystem with three or fourmajor currencies,K L A U S R E G L I N GDirector General tor Economic a n d FinancialAttairs, European Commission

H istory will not repeat it se lf ^i k e the move from sterling to the U.S.dollar. During the next one or two decades, we will move towarda m ultilateral currency system with three or four major currenc ies.The U .S. dollar will probably con tinue to be the mosl important cur-rency^with important links to NAFTA^bul will not longer be domi-nant for the world econom y.The euro will comprise at least twenty-five econom ies and will rep-resent the world's largest trading bloc and the most important linancialmarket. The euro will also be linked one way or another with thirty toforty other currencies.In Asia, the importance of the yuan will increase as growth in C hinacontinues to be much faster than in advanced economies, the financialmarket liberalizes, and the currency becomes fully convertible. The yenwill continue to be important but emerging Asian eco nomies may find itattractive to establish a formal or informal link with the yuan.

A decade during which neitherindividual currencies norregional blocs will dominate,GARYN. KLEIMANSenior Partner, Kleiman International Consultants

A nother choice: a decade during which neitherindividual currencies nor regional blocs willdominate. Instead, dozens of units fromemerging markets will join industrial country stal-warts as standard holdings in central bank reserves,as well as debt and equity investor portfolios.Developing world exchange rates will continuetheir secular appreciation, especially against the dol-lar on both economic fundamental and asset alloca-tion grounds. Already emerging bond markets areoverwhelmingly local-currency plays spread geo-graphically across Latin America and Europe, whileequities are heavily weighted toward Asiii.The Gulf's sovereign wealth pools, which blurclassic official/private-sector management distinc-tions, will increasingly target these destinations alongwith the broader Middle East and Africa. Emergingcapital and credit markets will dramatically raise their

share of th e global total, with multiple currency activ-ity reflected in turn, as evidenced in the latest seriesof Bank for International Settlements foreignexchange surveys.The institutional und retail investor bases in manycountries will approach and exceed the size of devel-oped world ct)unterparts. A cross-seclion of curren-cies may be prominent, but the vast range of acceptedrepositories available will invite wide diversification.

More and more countries are moving toward managinga trade-weighted currency basket.T E H K Q K P E N GPresident, G IC Special Investments a n d former Managing Director, t^onetary Auttiority ot Singapore

Isee a pattern of increasing regional trade over the next ten years in Asia. With more and more coun-tries moving toward managing a trade-weighted currency basket, you will have a de facto informalcurrency bloc, at least in Asia.


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An informal arrayof alternativeshas arisen.ALLEN SINAICiiief Giobaf Economisf atid Prsident,Decision Econotnics

D e facto, but fairly gradually so far, the world is movingaway from the dollar as the major global reserve cur-rency.An informal array of alternatives has risen. The include theeuro, the sterling, the yen. slowly the Chinese renminbi, andsome other currencies such as the Australian dollar. The FederalReserve broad dollar index against twenty-six foreign currenciesis down 2.8 percent since February 2002 and recently hasaccelerated its decline, tailing over 10.1 percent over the lasttwelve months. Increasingly, commodities such as gold andcrude oil are being bought as a store of value and a dollar alter-native as the econom ic, financial, and political fundamentalssurrounding the United States deteriorate compared with thoseof many non-U.S. countries and regions.Ten years from now? What appears to be in process is asecular trend reflecting a changing global econom ic and finan-cial geography where previous "have-not" countries havebecome "haves." The collective energy for global economicgrowth from the developing world has beeome very signifi-cant. Seismic shifts in the wealth of numerous countries inAsia, especially China, and elsew here, whose current accountand foreign exchange surpluses loom large in the global econ-omy, pemiit them to act as 'bankers" through sovereign wealthfunds, shifting world economic and financial power away fromthe United States.As yet the forces of reversal from the U.S. side do notappear to be emerging, suggesting that the shift away from theU.S. dollar to the "next great global currency" is in train.

The best bet is that some more fonnal currency basket willemerge, containing cuuencies from those countries that havestrong economies, strong domestic and international financialpositions, stable politics, and su rpluses on current account andforeign exchange, allhough perhaps with some commodity, suchas gold, that might be included.Markets will first identify those currencies and commodi-ties most favored that will be part of the "next great global cur-rency," not a single currency such as the dollar has been, but abasket reflecting the nevy and emerging realities of global eco-nomic wealth and power. A defined currency bloc would follow.

We are likely to beeft with no singleglobal currency.HANNES ANDROSCHFormer Austrian Finance Minister andHead of Creditanstalt-Bankverein

A ny global currency has two im portant functions to fulfill:as a means of settlement between countries experiencingexternal imbalance, and as a numraire in financial transactions. Despite the prestige involved and any short-termseigniorage benefits, no government really wants its domesticcurrency to become an international reserve or global cur-rency. The costs, responsibilities, and the associated restric-tions are simply too great. Moreover, the overhang of externaldebt poses a constant threat to the integrity of the currency.The need for a global currency has long been recognized.At the 1944 Bretton Woods Conference, economist JohnMaynard Keynes proposed the "'bancor," linked to a weightedcomm odity basket, as an international currency. This ingeniousproposal w ould have built an inflation hedge into the currencyMost synthetic currencies since proposed or implementedhave been linked to currency baskets. The best known are theSDR and the ECU, but their contribution to international liq-uidity has been marginal, at best. Some cuuencies such as theyen and the Swiss franc have proven popular on internationalcapital markets, but cannot be regarded as reserve currencies.It is difficult to imagine any synthetic currency becoming aglobal currency, if only because administrative and coordina-tion problems are likely to prove too much for its long-termcredibility.In modem tim es, we have had two reserve currencies wor-thy ofthe name, the sterling and the dolUir. These w ere the monetai'y units of vibrant and global real economies. In 1945, theUnited States accounted for more than 50 percent of w orld output. That it survived the turmoil ofth e 1970s is largely attrib-utable to its adoption as the currency in which oil and otherprimary commodities were priced.Today, there are no obvious candidates. The U .S. share ofworld output is about 20 percent with the European Unionenjoying a similar share. Japan accounts for about 10 percentand China 5 percent. Should comm odities be priced in cun"encies other than the dolkir, perhaps the euro, the preem inence ofthe dollar could unravel very quickly indeed. We are likely to beleft with a small group of leading currencies but no single globacurrency in the conventional sense.

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/ suspect questions about currencyblocs or lead currencies willnaturally resolve into the emergenceof a world currency.STEPHEN AXILRODFormer Staff Director tor Monetary and Financial Policy,Federal Reserve Board

A t Ihe risk of heing obvious, 1 doubt the liilure will see asingle dominant cutTency, .sueh a.s the do llar or the pound.The dollar should continue as frotitrunner for some yea rs.but finally, probably within ten years, it will become more likeone ot a lead pack, including the yuan and the euro, with theyen and the rupee not far behind. Looking even further aheadwith the tech revolution making it almost impossible for coun-tries to avoid knowledge about how lo developthemselves there is no telling how many more w ill m ove intocontention, or at least run a respectable race. Whether any com -bination would become cohe sive enough to act as a bloc seem suncertain, and not a very fruitful area for specu lation.

Looking well beyond any of our lifetimes. I suspect ques-tions about currency blocs or lead currencies will naturallyrsolve into the emergence of a world currency. TheInternational Monetary' Fund will once again have somethingreally useful todo. A council of wise men w ill have to be e stab-lished to agree on a name and determine which countries orblocs remain sufficiently importan t for their own finance min-isters to have the nationalistic pleasure of affixing their ownsignature to some of the currency, no politically simple task.

Coexistence of two or moremajor currencies,GEOFFREY LITTLERFormer Second Permanent Secretary of the Treasury,United Kingdom

T he concept of a single global currency reflects the longperiod in which first the pound sterling and then to aneven greater extent the U.S. dollar found that role bydominant economic power combined with relatively large,well-developed, and internationally accessible markets. Butreliance on a single global currency tends to create distortionsand imbalances when the dominance of the currency provider

diminishes whether by its own we akness or. as now, by thedramatic relative increase in strength of other economies,notably those of China and India.The tw enty-tlrst century will surely see a world of several

independent economies of large size and ptiwer. It is undesir-able, and in practice unlikely, that reliance should or will rest onany one great global currency. There is a particularly urgentneed for China to accept the great beneius and the responsibil-ities of developing its own yuan markets. Civexistence of twoor more major currencies of international investment, whoseweight may vary from time lo time, does not imply "foreignexchange chaos." I hope that within ten years we shall at leastsee movement in this direction.

The m ost probableoutcome is foreigncurrency chaos,SYLVIA OSTRYDistinguished Research Fellow,Centre for fnternational Studies,University of Toronto

T he most probable outcome is foreign currency chaos. Buti m a supporter of uncertainty, not probability. Accordingto Heisenberg, you can know where you are but notwhere you"re going or vice versa. We know where we are {ina burgeoning financial crisis), so let's see if there's politicalwill to use the crisis to determine w here w e're goingon theroad to reform.We are living through a revolution in technology that istranstbnning our economy and society. Tliis transfomiation is anengine of integration among countries, corporatitms. people,and ideas. Rapid changemuch of which we don't yet under-standrequires some safeguard against chaos. The stability of

governance is one such firewall.So while the current crisis can provide a launchpad forreform, a more important factor is global stability. We shouldexpect many crises, and the exchange rate is very relevant inthe aim for global stability. The great po wers, the United Statesand the European Union, could start the process by an agree-ment on exchange rates (to begin, floors and ceilings). TheInternational Monetary Fund is the relevant institution, but itwould be better to create a cooperative arrangement amongthree multilaterals. There's lots to do . But where there 's a polit-ical will, there's a policy way.


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Next Gen Global Currency