Shahin Vallée in Phenomenal World:
A profound sense of uncertainty dominates the question of the international monetary order today. Trump’s presidency in the US, the growing Sino-American rivalry, and widespread sanctions against Russia’s Central Bank reserves are all contributing to the general indeterminacy. The rise of crypto assets, digital currencies and the return of precious commodities as a potential store of value have prompted some to predict the demise of a fiat based monetary order powered by fractional reserve banking at home and offshore money creation abroad.
After decades acting as the anchor of the global monetary order, the role of the dollar has now come into question. The promotion of stablecoins and other advanced commercial cryptocurrencies have been designed to expand the dollar’s global role, but the outcome of this cryptomercantilism remains to be seen. China has its own internationalization strategy built on the expansion of its central bank’s bilateral swap network to advance renminbi invoicing and the creation of a fully digital payment system backed by a digital currency.
Europe’s strategy is yet to emerge. There is an opportunity for European leaders—not just central bankers—to seize the moment to expand Europe’s global monetary role. A stronger role for the euro would likely enhance European resilience, be it by expanding protections from US sanctions, by helping to insulate Europe’s economy from swings in foreign exchange rates, or by securing better financing conditions for European governments, businesses, and households. But a stronger role for the euro, which doesn’t preclude some costs, will require a degree of planning and policy coordination across member states, as well as between fiscal and monetary authorities—both of which are so far lacking.
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