It is widely speculated that in the following years, the international currency system will shift from U.S. dollar hegemony to a tripolar system (U.S. dollar, the euro and the Chinese yuan). Right now, Eurozone is so enmeshed in its economic and political crises that it could hardly schedule an agenda for euro internationalisation while the internationalisation of Chinese yuan stands firmly in the priorities of Chinese government’s current agenda. All these being said, I still argue that U.S. dollar Hegemony will endure for a long time.

Annina Kaltenbrunner and Photis Lysandrou comment that the internationalisation of Chinese yuan does not help “…the foreign institutional investors [with] private governance institutions [and] protection of minority shareholder rights” (2017). This comment typifies the western viewpoint, which assumes that internationalisation of Chinese yuan serves for bigger private investment from and to China. However, none of its ongoing strategies is private-investment oriented. Instead, they are all strictly directed under the supervision of Chinese government: “joining Special Drawing Rights basket of IMF”, “[Qualified] Foreign Institutional Investors” and “the establishment of [Asian Infrastructure] Investment Bank” (Li and Zhang 2017), to name a few. Thus seen, unlike the American strategies in history (e.g., Bretton Woods Agreement and Floating Exchange Rate in the 1970s), these strategies are not oriented to opening up private financial investments. Rather, they are “Chinese Marshall Plans”. A case in point is that after 2008 Financial Crisis, Chinese government offered tremendous debts to the devastated countries, and at present, pushes these same countries to hold Chinese yuan reserves (Li and Zhang 2017). Moreover, the Chinese government has warned international speculators to retreat from speculating the appreciation of Chinese yuan (Zhang 2011). In short, the Chinese yuan will not challenge U.S. dollar hegemony because the Chinese Government never intended to do so.

Eurozone is in real trouble: not many European Member States’ (EMS) annual GDP growth exceeds one percent (exacerbated by low inflation); the advanced Asian countries eclipse EMSs in world trade competition (The expectation of higher interest rate leads the euro to appreciate, which further undermines its trade competitiveness); European citizens in the southern countries suffer from high unemployment and low wage, and postpone their spending in fear of another recession; the European banks could hardly profit from interest-rate margins due to low interest rates while being forced to “deleverage” after 2008 Financial Crisis. Meanwhile, fissure between northern and southern countries grows ever more serious (For example, Germany wants to raise the interest rate, which would be a disaster for the southern countries) (Mody 2018). In fact, nothing suggests that the EU officials are putting the internationalisation of the euro on the table. Thus seen, Eurozone’s current priority is to sort out its own problems before they could possibility schedule an agenda to internationalise the euro. At present, it lacks both the political autonomy and the economical attractiveness.

Given that the U.S. is circulating way more securities than could it repay under perpetuating government deficits, many hold that if U.S. defaults, investors will run on its securities, thus curtailing the hegemon status of U.S. dollar. Kaltenbrunner and Lysandrou debunk this myth: due to the high standardisation and transparency of the U.S. security market, sufficient supply (in terms of issuing financial products, no other security market is comparable to the U.S.) and demand (which means insurmountable liquidity) and minimal effect on its prices when selling and/or buying, U.S. security has become a means of value storage, especially considering the Griffin Problem (i.e. U.S. dollar is in shortage) at play. Therefore, financial intermediaries must constantly hold certain amount of U.S. securities to deal with some instant repayments, rather than running on U.S. securities as widely feared (Kaltenbrunner and Lysandrou 2017). Besides, It is among U.S. government’s best interests to finance their spending by constantly selling U.S. bonds to trade-surplus Asian countries, especially China. If trades with these Asian countries were not denominated in U.S. dollar, U.S. dollar would not flow back to U.S. government in large sums. It is because of these two reasons that neither the investors nor the U.S. government would let go of the U.S. dollar hegemony.

The three competitors are apparently having different agendas: While Eurozone is taking care of its internal business, and China is building up its “Marshall Plan”, the investors and U.S. government are sustaining U.S. dollar hegemony. The status quo is secure so long as they do not change their agendas.

Bibliography

Kaltenbrunner, Annia and Lysandrou, Photis. 2017. “The US Dollar’s Continuing Hegemony as an International Currency: A Double-matrix Analysis”. Development and Change, Vol. 48 (No. 4): 663-691.

Li, Cheng and Zhang, Xiaojing. 2018. “Renminbi Internationalization in the New Normal: Progress, Determinants and Policy Discussions”. China and World Economy, Vol. 25 (No. 2): 22-44.

Mody, Ashok. 2018. “The Future Ain’t What It Used to Be”. EuroTragedy: A Drama in Nine Acts, Published to Oxford Scholarship Online. May. http://www.oxfordscholarship.com/view/10.1093/oso/9780199351381.001.0001/oso-9780199351381-chapter-11

Zhang, B.. 2011. “RMB Internationalization In Wrong Sequence” Institute of World Economics and Politics Policy Brief, No. 2011.036. Chinese Academy of Social Sciences (in Chinese).