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Transformation of the global financial system: the US dollar and national currencies
Abstract
The article is devoted to the issues of evolution and modern transformation of the architecture of the global financial system. The relevance of the study lies in the importance of detailing the current issues of the influence of the currency factor on international trade, settlements and pricing in the commodity markets in the context of deglobalization and rapid transformation of the global financial system, the transition to a multipolar world order. The purpose of the study is to analyze the role of national currencies in the transformation of the global financial system and their influence on the processes of formation of a multipolar world order. The objectives of the study include a comprehensive analysis of the currency composition of international settlements and foreign exchange reserves, as well as detailing the dynamics of the use of national currencies in international reserves and settlements. The methods of the study include analysis (structural-dynamic, statistical), the method of expert assessments. The data sample covers the period from 2000 to 2024 and is based on data from international financial institutions and organizations such as the International Monetary Fund (IMF), SWIFT. As a result of the study, based on statistical data, the hypothesis about the decreasing role of the US dollar in the global financial system was confirmed, which is manifested in the reduction of its use in sovereign international currency reserves, as well as in the implementation of international settlements. In parallel with the decrease in the share of the US dollar, it is being replaced by national currencies. In turn, the change in the currency composition serves as an additional driver of deglobalization of the global financial system, the formation of new currency associations and alternative settlement systems. The scope of application of the results includes the development of currency regulation strategies, improvement of international financial cooperation and the formation of a more equitable and sustainable global financial system. The limitations of the study are related to the limited frequency of release of statistical data on international currency reserves, as well as the limited availability of statistical information on investments in Chinese government securities. Future research may be aimed at studying the impact of digital currencies and blockchain technologies on the transformation of the global financial system.
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Under financial sanctions imposed on it by the US and the EU, Russia accelerated dedollarization of the economy in order to protect its sovereignty in strategic rivalry with the US. To this end, a set of strategies has been developed, such as reducing the direct use of US dollars, cutting the share of the dollar in foreign exchange reserves, expanding nondollar funding, increasing gold reserves, as well as reserving and creating its own systems of payment and exchange of financial information. This practice is of great importance for reorganizing the dollar-dominated international monetary system and establishing a new economic and financial system.
The neoliberal model of globalization promoted the outstripping growth of financial assets over the development of the real sector. The functioning of the international monetary system (IMS), based on one key national currency — the US dollar, has led to the financialization of the world economy and the formation of global imbalances. The purpose of the article is to substantiate the need to replace US-centric financial institutions with new institutions at the regional level and to transform the IMS in the direction of monetary polycentrism and regionalization. The paper discusses the mutual responsibility of the core and periphery countries for the formation of global imbalances. The financial and economic indicators of sovereign states, transnational companies and transnational banks are compared according to the “scale” of globalization. The study shows chronic disproportions between the dynamics of global capital growth and economic growth rates, leading to the state’s loss of control over the reproduction process. It is substantiated that the current transformation of the IMS in the direction of monetary polycentrism and regionalization is a natural reaction to these imbalances. The article reveals a negative relationship between the implementation of procyclical and anti-crisis monetary policies by the central banks of developed countries and the competitive positions of developing countries in international financial and commodity markets. The factors of using the oligopoly of the Big Three credit rating agencies as a “soft power” to maintain the US global hegemony and the status of the US dollar as a key reserve currency are systematized. The author concludes that in order for developing countries to form their own international liquidity, it is necessary to stimulate the internationalization of their currencies by developing pan-Asian financial institutions and encouraging competition between them and the existing institutions of the IMS.
Market financialisation radically changes the process of oil pricing and results in increase of price volatility. Normal contango situation in financial markets is favorable for government risk hedging. Optimal hedging strategy depends on derivatives’ market conditions, but the recommended contract is put/spread option. Budget hedging may be beneficial for Government as it permits to include oil price in the process of budget planning more accurately.
Reviews and summarizes different public choice approaches used in the literature to study International Sanctions
We document a decline in the dollar share of international reserves since 1999. This decline reflects active portfolio diversification by central bank reserve managers, rather than changes in exchange rates and interest rates, reserve accumulation by a handful of central banks with distinctive balance sheets, or changes in coverage of surveys of reserve composition. Strikingly, the shares of the euro, yen and pound sterling have not concurrently increased. Instead, the shift out of dollars has been in two directions: a quarter into the Chinese renminbi, and three quarters into the currencies of smaller countries that have played a more limited role in reserves. The evolution of the international reserve system in the last 20 years is thus a gradual movement away from the dollar, a modest rise in the role of the renminbi, and changes in market liquidity, relative returns and reserve management enhancing the attractions of nontraditional reserve currencies.
Scholarship on international currencies has traditionally emphasised how an issuing state’s foreign policy can enhance the attractiveness of its currency for cross-border use. Yet, foreign policy actions need not only boost a currency’s international appeal—they may also undermine it. This study introduces a general theory of how US foreign policy can influence governments’ policy orientations toward the dollar in positive or negative ways. Policies like financial sanctions generate ‘political risk’ that weaken the dollar’s attractiveness for international use. The study tests the claim that the United States’ use of financial sanctions incentivises targeted governments to implement de-dollarization policies. I employ a most-likely case study design, presenting evidence from three countries targeted by US sanctions: Russia, Venezuela and Turkey. In each instance, the evidence shows that financial sanctions created political risk concerns by generating expectations of future direct costs of dollar use. These expectations set off policy efforts by targeted governments to reduce their economies’ exposure to the currency. This study raises important questions about the long-term efficacy of an approach to foreign policy that relies on financial sanctions as a primary means of leverage over foreign adversaries as overuse may undermine the effectiveness of the tool itself.
The article examines recent developments in the global market for crude oil futures contracts. Amid persistently high trading volume of futures contracts for Brent and WTI global oil benchmarks structure of the market has recently changed profoundly. Share of non-commercial investors who are not directly linked to physical oil operations and are often considered speculators in the trade turnover of futures contracts for WTI at the NYMEX exchange has exceeded 50%. Financial investors play a prominent role in price discovery process for crude oil. However, world leading commercial banks that used to be the major participants in crude oil futures market and were also actively engaged into physical oil trading operations presently are forced to adjust their strategies responding to the regulatory reforms unleashed in the USA and European Union after the global fi nancial crisis of 2008/2009. Provisions of Dodd-Frank Act in the USA and similar regulations in the European Union member countries aim to limit banks' involvement in commodity derivatives market exclusively to hedging activities referred to swap transactions between banks and their clients. New tighter regulation substantially increases costs of commodity derivatives' business for commercial banks. Also, the current US legislation prohibits banks from proprietary trading with derivatives instruments. These legislative innovations could substantially reduce banks' profi ts. The largest global commercial banks have already reduced their physical commodity trading activities. The author concludes that while it is still unclear how signifi cant the retreat of banks from crude oil derivatives market will be, the established mechanism of oil price setting is unlikely to change dramatically as new players from the fi nancial sector are entering the market, replacing commercial banks.
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