The rocky road ahead: China, the US and the future of the dollar

Foreign Exchange Accumulation and the Entrapment of Chinese Monetary Power: Towards a Balanced Growth Regime?

“…This interpretation neatly resonates with the conventional understanding in the IPE literature on international monetary power that these reserves have considerably improved China's macroeconomic policy autonomy -the strongest reflection of which has been its capacity to resist attempts by the US government to enforce an appreciation of the renminbi (for example Bowles and Wang 2008;Chin and Helleiner 2008;Cohen 2008). While the monetary power literature has also drawn attention to the presence of major external constraints on the pursuit of China's monetary power, scholars have usually narrowed down their argument to the thesis that its currency policy is determined by its desire to maintain the value of its foreign exchange reserves and to support the competitiveness of its export sector -a thesis that directly follows from Jonathan Kirshner's concept of 'entrapment' (Kirshner 1995).…”

Watching from the sidelines? The decline of the IMF's crisis management role

“…In addition, the continuing importance of the US dollar as a de facto world currency gives the United States unique benefits of 'seigniorage' (cf. Bowles andBaotai 2008, Subacci 2008), and acts as a major constraint on the actions of the IMF, which needs US cooperation to perform its functions (Babb 2003, p. 17;Gould 2003), in particular, as a key source of supplementary finance for IMF loan programmes. However, there is a profound and potentially irreconcilable tension in the dollar's role that is becoming more apparent, and which threatens to undermine the United States' structural power.…”

The euro for China: too important to fail and too difficult to rescue

“…So far analyses on China's approach toward the euro have come mostly from the press (see Economist 2011 ;Sender 2011) and researchers at think tanks (Casarini 2012;Godement, Parello-Plesner, and Richard 2011;Subramanian 2011). Over the past years the academic literature has explored China's possible diversification strategy out of the dollar and into the euro (Bowles and Wang 2008;Click 2006;Otero-Iglesias and Steinberg 2013). It has also analysed the implications of China's increased monetary and financial power for USÀChina relations and the reconfiguration of the international monetary system (Chin and Helleiner 2008;Drezner 2009).…”