Fifteen years after the collapse of the US investment bank Lehman Brothers triggered a devastating global financial crisis, the banking system is in trouble again. Central bankers and financial regulators each seem to bear some of the blame for the recent tumult, but there is significant disagreement over how much – and what, if anything, can be done to avoid a deeper crisis.
BERKELEY – The competition for reserve-currency status is conventionally portrayed as a winner-take-all game. There is room, in this view, for just one full-fledged international currency. The only question is which national currency will capture the role.
Market logic, it is argued, dictates this result. For importers and exporters, quoting prices in the same currency – say, the dollar – as other importers and exporters avoids confusing one’s customers. For central banks, holding reserves in the same currency as other central banks means holding the most liquid asset. With everyone else buying, selling, and holding dollars, it pays to do the same, since markets in dollar-denominated assets will be the deepest.
While it is always possible that there could come a tipping point at which everyone migrates from one currency to another, the network-based nature of the international monetary system, it is said, leaves room for only one true international unit.
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