Global currencies for tomorrow: a European perspective

This report examines how the international monetary system (IMS) might evolve and the implications of different scenarios for the euro area over the next fifteen years.After the collapse of the Bretton Woods system forty years ago, the IMS gradually developed into its present state, a hybrid mix of exchange-rate flexibility, capital mobility and monetary independence. The US dollar retains a dominant, but not exclusive, role and the IMS governance system blends regional and multilateral surveillance. It combines IMF-based and ad-hoc liquidity provision. Although it has proved resilient during the crisis, partly thanks to ad-hoc arrangements, the IMS has serious flaws, which are likely to be magnified by the rapid transformation of the global economy and the increasing economic power of emerging economies.

Global imbalances: the international monetary system and financial stability.

Understanding the link between global macroeconomic imbalances and financial stability is critical not only for understanding the recent financial crisis, but also for what could happen next. The imbalances and financial vulnerabilities that plagued the global economy before the crisis have begun to re-emerge. In a context of deficient global demand and exceptionally low interest rates in many countries, one likely result is excessively risky behaviour in the financial sector. A failure to resolve global disequilibria will ultimately undermine the global recovery and financial stability. Several lines of defence against this outcome are needed, including greater responsibility on the part of households, firms and governments to manage their debts, and enhanced financial sector supervision.