THE WORLD CURRENCY ORDER: FROM CURRENCY GLOBALIZATION TO CURRENCY GEOPOLITICS

Abstract

The paper examines issues related to the transformation of the world currency order, with the US dollar commanding leadership in world trade as the primary reserve currency.

Before the COVID-19 pandemic, the US-led unipolar world order was fueling the process of hyper-globalization. Hyper-globalization, in turn, strengthened the position of the US dollar in the global economy. In this context, the clear dominance of the US dollar in both international trade and global foreign-exchange reserves can be characterized as currency globalization.

The economic sanctions imposed by the West on Russia have affected the global dominance of the US dollar.

With the start of Russia’s war in Ukraine, the process of globalization entered the stage of confrontational globalization. As a result, the unipolar world order began to transform into a multipolar world order. This could not help but influence the world currency order that developed under hyper-globalization, when the geopolitical factor stood in the way of currency globalization.

Currency geopolitics, where geopolitical factors increasingly determine both the currencies in international trade and the formation of foreign exchange reserves, is not a new phenomenon. After the First World War, geopolitical motives played an important role in selecting international currencies for foreign exchange reserves. While the geopolitical factor remains in the era of currency globalization, it does not dominate the system. From this, it follows that currency globalization and currency geopolitics do not exclude each other at all, but rather complement each other. At the same time, in certain historical periods, as a rule, one of them prevails: either currency globalization or currency geopolitics.

In the context of the significant uncertainty surrounding many aspects of the modern geopolitical landscape, and the geopolitical fragmentation of risks resulting from the Western sanctions on Russia, there has been a noteworthy accumulation of gold as an alternative reserve asset, and increase in the use of various currencies in international trade.

The euro is not reliable as a universal reserve asset. Structural and political problems in the EU, particularly the lack of a coordinated fiscal policy among its member states, undermine its stability and appeal as an alternative to the US dollar.

China’s growing role in global trade has contributed to the yuan’s rise as a global currency, although there are objective reasons (notably strict government controls on capital flows, lack of transparency in financial markets, and centralization of one-party political power) that make many countries reluctant to use it as a reserve currency.

The BRICS countries intend to create a new reserve currency backed by a basket of their own national currencies, with the potential for gold-backing in addition. That said, due to the unresolved nature of many institutional, organizational and technical issues, BRICS is still far from resolving the issue of introducing a new reserve currency.

The US dollar is likely to continue its global dominance and retain its role as the world’s main reserve currency in the short and medium term, it is fundamentally unacceptable to overlook the gradual strengthening of the currency geopolitics factor.

The new world monetary order is being formed as a combination of monetary globalization and monetary geopolitics, in which the latter plays a predominant role.