The evolution of the Offshore US-Dollar System: past, present and four possible futures

Abstract

Little has contributed more to the emergence of today's world of financial globalization than the setup of the international monetary system. In its current shape, it has a hierarchical structure with the US-Dollar (USD) at the top and various other monetary areas forming a multilayered periphery to it. A key feature of the system is the creation of USD offshore – a feature that in the 1950s and 60s developed in co-evolution with the Bretton Woods System and in the 1970s replaced it. Since the 2007–9 Financial Crisis, this ‘Offshore US-Dollar System’ has been backstopped by the Federal Reserve's network of swap lines which are extended to other key central banks. This systemic evolution may continue in the decades to come, but other systemic arrangements are possible as well and have historical precedents. This article discusses four trajectories that would lead to different setups of the international monetary system by 2040, taking into account how its hierarchical structure and the role of offshore credit money creation may evolve. In addition to a continuation of USD hegemony, we present the emergence of competing monetary blocs, the formation of an international monetary federation and the disintegration into an international monetary anarchy.

The legacy of Frank H. Knight for the politics of financial governance

“…has recently re-emerged as a significant focus of analysis for scholars across a range of disciplines, as well as for international financial institutions such as the Bank for International Settlements (Frasser and Guzmán, 2020). This is perhaps to be expected given that the last decade has witnessed unprecedented central bank efforts to address financial instability (Salter and Tarko, 2019), reorganisation in the international monetary system (Murau, 2017;Murau et al, 2020), and novel advances in payment technologies, especially in terms of the emergence of new digital currencies (Luther, 2019;Smit et al, 2016). Minsky's financial instability hypothesis offers an important intellectual touchstone for much recent analysis (Wray, 2017;Ferri, 2019), not least because of its emphasis on endogenous instability as a cause of financial crises (Hodgson, 2009(Hodgson, : 1207Mirowski, 2010).…”

Digital currencies, monetary sovereignty, and U.S.–China power competition

“…During the Bretton Woods era, the global monetary system was dominated by currencies that circulated within national jurisdictions and were controlled by a single public authority (Murau et al, 2020). Modern Money Theory turned this historical constellation into a theoretical proposition: monetarily sovereign governments have to be able to fully control the “functioning of the domestic monetary system,” including the legal means of payment and regulatory frameworks for banking, finance, and payment mechanisms (Tymoigne, 2020, p. 2).…”

“…Whether digital currencies become a geopolitical game‐changer (S. Fleming & Pickford, 2021; Rosa & Tentori, 2021) mainly depends on the digital RMB's successful transformation into a transnational unit of account akin to the USD. The current gap between Chinese and U.S. monetary power and autonomy is enormous because the currencies linked to both states occupy very different positions within the global monetary hierarchy (Cohen, 2005; Murau et al, 2020). The USD is a global unit of account with massive amounts of offshore money creation.…”

'Creating Change Where it Matters the Most': Artistic Directorship and Representation in the London Theatre

“…On the one hand, this can be seen in the export of the US model of market-based finance to other countries, based on the pressure of the financial sector, which remains largely concentrated among a few players in New York and London (Gowan, 2009;Fichtner, 2017;Gabor, 2018). On the other hand, it can be seen in the growing internationalisation and dominance of US dollar markets, whose offshore dimension represents a key characteristic of the international monetary system in the current stage (Murau et al, 2020).…”