DP13453 China vs. U.S.: IMS Meets IPS

Author(s): Emmanuel Farhi, Matteo Maggiori
Publication Date: January 2019
Date Revised: January 2019
Keyword(s): Confidence Crises, Dollar, Exorbitant Privilege, Nurkse Instability, reserve currencies, RMB, safe assets, Triffin dilemma
JEL(s): D42, E12, E42, E44, F3, F55, G15, G28
Programme Areas: Financial Economics, International Trade and Regional Economics, International Macroeconomics and Finance, Monetary Economics and Fluctuations
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=13453

Currently both the International Monetary System (IMS) and the International Price Systems (IPS) are dominated by the U.S. The emergence of China, both as reserve currency and as a currency of invoicing, is likely to disrupt this status quo. We provide a framework to understand the forces that will shape this transition and identify sources of instability. We highlight the risk of an abrupt shift triggered by a run on the dollar.