A Study On The Global Economic Imbalances' Formation, Characteristics And Sustainability Under The Dollar Standard

Global Economic Imbalances is not a new problem, in fact the world economy has experienced several rounds of imbalances and rebalances cycles, and scholars from various countries have never stopped their research and controversy around the issues such as its causes and sustainability. The writer combines the existing research results and hope to build an analytical framework, in which you can see the global economic imbalances'evolution logic and the accompanied changes in the international monetary system; you can also see under the dollar standard, world economy structure's pattern driven by monetary hegemony and the fundamental contradictions of this system; finally, offering ideas and suggestions for the prospective international economy structure's trend as well as the international monetary system's reform strategy.This paper is constituted by six chapters, including: Introduction, Dollar Standard and the Formation of Global Economic Imbalances, International Currency Competition's determinants Intrinsic Motivation and Determinants, Dollar Standard's Historical Interpretation, the Global Economic Imbalances'characteristics and sustainability under international monetary standard, Rebalance of Global Economic Imbalances. The paper follows the "total - sub - total" and progressive layers structure arrangement, discussing the global economic imbalances' formation, characteristics and sustainability under the dollar standardFirstly, the writer considers that the international monetary system is an important factor which affects the world economy imbalances after reviewing a variety of different perspectives. The United States and other country's investment-saving imbalance, the periphery countries'currency mismatch and path dependence, the United States'financial advantage and the global economic pattern formation hypothesis driven by comparative advantage of different countries, which all closely contact to the monetary standard's international monetary system arrangement. Global imbalances is a structural weakness which is caused by the current international monetary system to the world economy, as long as the existing international monetary system structure unchanged, it is difficult to prevent the recurring imbalances. From the research perspectives of the evolution of the international monetary system and dollar international currency status to explore the global economic imbalances should be a more analytical way to clarify logic.Under the dollar standard system, the international division of labor and distribution of benefits are non-symmetrical; the imbalance of the U.S. domestic economy and industrial restructuring will affect the external economic imbalances and adjustments. On one hand, the United States as the central country, uses the U.S. dollar's unique position, through the export of capital, industry chain integration and other means, transfers the industries which has lost comparative advantage to the peripheral countries and enhances domestic production efficiency as well as reduces the cost of U.S. consumption; on the one hand, China and other surplus countries get external support through net saving net output in order to create a stable environment for domestic economic growth, which provides absorb area for the U.S. credit output.In order to keep the dollar-driven international division of labor, the United States achieves the dollar circulation through foreign trade markets and financial intermediaries: on one hand, the U.S. products dollars. The U.S. exchanges resources and products from other countries by printing dollars, using their transnational corporations'monopoly position, the international financial futures market, as well as political and military means to control commodity pricing power; on the other hand, the United States manages dollars. The well-developed financial intermediaries and a wealth of financial derivative products can provide a high investment return, which are used by the United States to attract foreign capital to flow into America; the United States gets more capital market returns, the liquidity promotes the further expansion of its financial advantages.Under the dollar standard, the United States not only controls the structure of global division of labor and benefit distribution, but also crowds out other international currencies circulation range through the expansion of the U.S. dollar, which makes the international monetary system lack of flexibility. Emerging economies in the process of economy growth form the "original sin" of path dependence on the dollar and the currency mismatch, and fall into "dollar dilemma." With globalization development, the larger world's economy scale, the more dependence of external countries on the dollar, the more profit the United States will achieve, the more difficult and risky that other economies can shift from the U.S. dollars. Secondly, the paper discusses the determinants of international currency competition: one from the intrinsic motivation of currency issuing country to internationalize their currency, another one is from the world economy's objective requirements to the international monetary because of whose characteristics. The intrinsic motivation of participation of each country to currency internationalization is to gain currency power. Currency's "non-neutral" characteristic can bring currency issuing country ability to grab "currency power". The one who have the ultimate right to issue currency largely has the right in resources allocation. Extended to the international economic field, monetary power refers to the ability of one country (region) to make decision on monetary affairs independently and impose to other countries (region). Usually, the key currency countries only need to develop single monetary policy in accordance with domestic economic situation in their favor, while the non-key currency countries also face to internal and external policy coordination dilemma. In such a situation of imbalance currency status, non-key currency countries often become victims of center countries'economic fluctuations, and the passive bearer of the international balance of payment adjustment cost.Apart from the governments'subjective willing on the implementation of their currency internationalization, the international monetary competitive position also depends on a number of objective factors. The paper revolves the determinants of the currency around currency valuation and settlement functions, ease of trading, currency credibility and other features. Relative to the internal dynamics of the currency internationalization, the discussion of this level is mainly from how the external environment chooses the country's currency as an international currency perspective to analysis.The study of the international monetary competition aimed at playing a linking role, which can make you to more in-depth understand why the U.S. dollar as standard currency can have a significant impact to the formation and sustainability of global economic imbalances, and can better interpret dollar standard deductive logic to follow: on one hand the United States intends to improve the dollar's international status and get more monetary power; on the other hand, network externality causes the international economic system's dependent on the dollar, and countries hardly compete with the United States in comprehensive strength, which lead to the slow process of currency substitution in the international monetary system. Thirdly, the paper reviews the changes in the international monetary system, and summarizes the evolution history of dollar standard: the dollar and sterling race under the gold standard can be seen as a prelude to the dollar standard; the Bretton Woods system is a "fixed exchange rate U.S. dollar standard system", U.S. dollar hegemony has been established in this period; while post-Bretton Woods is "pure dollar standard", the U.S. dollar hegemony was expanded and consolidated in this period.Dollar standard's historical evolution always follows a logical thread: in order to obtain more money power and gain active in the international imbalances adjustment, the United States is constantly trying to break the international monetary system arrangement which constrains it to grab hegemony. Since the dollar became centre currency, the international monetary system gradually began to bound onto the path of losing precious metal control, and ultimately into the "paper standard" era that only supported by national credit, the U.S. dollar hegemony has been fully expanded. Dollar standard evolution is also the process in which the international monetary system continually weakened its ability to rebalance the global economy. With the advancement and expansion of U.S. dollar's international status, the dollar-led global economic imbalances are constantly expanding. Depending on the U.S. dollar's international currency status, the United States created the situation of "the United States enjoys interests exclusively, risk is shared globally" objectively.Fourthly, the paper reviews the global imbalances and re-balances process in history, and the sustainability of global imbalances in various stages is discussed. Global economic imbalances and the international monetary system are closely linked, especially after the collapse of the Bretton Woods system, global imbalances repeated and has never achieve a balance, the "pure dollar standard" that is only credit supported and no longer relies on precious metals bound is an important reason. Therefore, the current global economic imbalances is only the modern version of an old problem, which is the repeat of global economic imbalances when British pound was the central currency in gold standard period as well as when the dollar was the standard currency in Bretton Woods system. Although the imbalances under different monetary standards have their own background, but have the same logic to some extent. When any single national currency gains an absolute advantage in the international monetary system, it will face "Triffin dilemma" and the interests imbalance of center and peripheral countries under the expansion of centre currency hegemony, thereby resulting in the international monetary system's vulnerability and loss of balance adjustment mechanism, the root that results imbalance until now has not disappeared. And the paper standard international monetary system that based on the U.S. dollar led to and increased global economic and financial system's imbalances. These imbalances extend to international capital flow, international trade and other fields, and challenge the sustainability of the current international monetary system.Fifthly, this paper stands in center and periphery nations'position, respectively analyzes the adjustments may be taken to when each of which faces to imbalances, and commented on the effects of these ways to their own and the counterpart. As the participants and interests are different, the ways to correct imbalances may be also different. But in order to ultimately achieve the global economy re-balance, both the two sides must coordinate and come to agreements to shared the adjusting cost, all countries can take the initiative to implement domestic policies to adjust is the only way to make the international coordination possible. Furthermore, in order to fundamentally eliminate global imbalances and instability factors, it is necessary to promote the reform of the international monetary system, which requires countries to reach a high degree of consensus and in-depth cooperation. Firstly, establish a national currency which is not based on country currency in order to avoid the international monetary system's endogenous vulnerability caused by "one money dominant". Here are feasible ways such as expanding SDR function, and increasing the type of "a basket currencies" in SDR, to reasonably reflect the current global economy structure. The second is to reform the carrier body of international monetary system, especially the International Monetary Fund, to increase the developing countries'right to speak in the International Monetary Fund, to adjust the various coordination mechanisms to monitor whether countries including the United States can effectively take the responsibility of international imbalances adjustment, to strengthen the monitoring of international economic risks.Finally, countries must enhance regional monetary cooperation, and build dollar, euro and Asian dollar's "stable three-pole". The new situation of world economic development needs as well as China's own economic and financial conditions has brought great opportunities for the internationalization of the RMB. The process of internationalization of the RMB should be patient, and boost gradually based on the actual situation. Enhancing regional monetary cooperation and financial cooperation should be the focus of current efforts.