International currency system: Is the US dollar no longer the world’s key currency?

Much criticism has been recently voiced on the role of the US-dollar as the world’s leading currency. Should it be replaced as a key and reserve currency? Lukas Menkhoff, University of Hanover, believes that the US dollar “has been in a declining phase as a key international currency for some time”. The reasons for this, however, are to be seen less in failings in the US and more in the dynamics of open national economies that is causing the earnings of many national economies to converge with that of the rich countries. In this process the relative importance of a national economy with relatively weak growth is decreasing. Therefore, the US dollar as a key currency is being replaced, a process in which several scenarios are conceivable. In none of these scenarios is it likely that the US dollar “will celebrate its 100th birthday as the leading currency”. For Stephan Schulmeister, Austrian Institute for Economic Research, Vienna, globalisation without a supranational currency is a “fatal contradiction”. An increasingly more strongly globalised economy needs a supranational leading currency, ergo a genuine world currency, because otherwise there is an unsolvable basic conflict between the “national economic” interests of the key-currency country and the “global economic” interests of the world economy. A new world currency could include, for example, the dollar, the euro, the renminbi and the yen. Bernd Kempa, University of Münster, on the other hand, sees no alternative at the present time to the US dollar as the leading currency. Furthermore, in the course of a correction of global imbalances, the dollar will gain in trust and credibility so that it can continue to play the role as the dominant invoicing currency in the international market. Norbert Walter, Deutsche Bank Group, points out that changing the world’s reserve currency is not a matter of the worth of the instrument but of the costs and coordination of its replacement. This is a factor that speaks for the dollar. Moreover, convincing arguments for a specific currency alternative are not currently available.