Source: CGTN Published: 2019-7-20
In 1944, the Bretton Woods system was established to replace the gold standard with the U.S. dollar as the global currency. The system ended in 1971 when President Nixon broke the gold peg, but the U.S. dollar remains dominant among global currencies. Over the last 75 years, how has the world changed?
"In 75 years, many things have greatly changed. Globalization had changed a lot fundamentally in the past two decades, such as the monetary policy-making and monetary exchanges," said Liu Zhiqin, senior fellow at Chongyang Institute for Financial Studies under Renmin University of China.
He admitted that Bretton Woods system has made a great contribution to recover the world economy after World War II by "following one system, one rule", but he also insisted that "we should have a diversified currency system in today's environment of globalization", for nowadays the situation is totally different from the one 75 years ago when the international currency system was only used to try to serve developed countries and recover traditional powers, while developing areas and poor countries were paid no attention to.
According to Liu, now the major part of the world economy is more or less dominated by developing countries and emerging markets, so a new international currency system is demanded to meet their needs.
Maria Demertzis, deputy director of Bruegel in Brussels, held that "for the moment, dollar supremacy is going to remain". Although an international role has already been played by the euro, "It's second and actually a distant second to the dollar".
Professor James Nolt, a senior fellow at the World Policy Institute in Shanghai, further pointed out that "a strong currency or attractive currency is not just a matter of policy but a matter of usage, and one of the reasons why it's difficult to replace the dollar in the world economy".
With the rise of cryptocurrencies, such as Facebook's Libra, some people see them as a major threat to national sovereignty and the very foundation of current world monetary system. Liu is worried that Libra could be a huge threat to China if it lacks regulation, monitoring system or supervising system.
Dimitri Tsomocos, professor of financial economics at the University of Oxford, stated that "money is an institutionalized symbol of trust, so cryptocurrency is very difficult to replace mainstream money, in particular the U.S. dollar as a standardized, institutionalized symbol of trust".
Professor Nolt added that cryptocurrencies are often used for "illegal transactions because of the nature of their anonymity, and that's also one of the reasons why they lack stability".
Liu Zhiqin is a senior fellow of Chongyang Institute for Financial Studies at Renmin University of China.