Currencies and International Order

 

Does great-power politics shape international monetary decision-making? Susan Strange and Robert Gilpin certainly thought so. In recent years, however, International Political Economy (IPE) has turned increasingly to models inspired by economic drivers—ranging from market liquidity to global integration.

In their new article, “No Reservations: International Order and Demand for the Renminbi as a Reserve Currency,” Steven Liao and Daniel McDowell reawaken this earlier tradition, turning the spotlight on China and the Renminbi. Their article finds that as states preferences diverge from the United State, they are more likely to hold Renminbi. Monetary policy, then, becomes part of a hedging strategy against American hegemony and possibly support for an alternative international order. The article nicely ties questions of monetary policy to important issues of great-power transitions. Given recent moves by the International Monetary Fund (IMF), which seem to place the Renminbi closer to reserve currency status, as well as the tumult in domestic Chinese monetary policy, this article speaks directly to events on the ground.

To think through these issues, we invited four experts on monetary politics to comment: Alex Cooley, Jonathan Kirshner, Kathleen McNamara, and David Steinberg. Their interventions highlight a number of important takeaways, as well as challenges for future research. Importantly, Cooley and Kirshner question the degree to which the adoption of Renminbi holdings signals the emergence of an alternative order with its own normative principles that could challenge those of the US and its allies or is merely a diversification strategy with far more limited consequences. McNamara and Steinberg emphasize the importance of domestic political institutions and politics for the global attractiveness of the Renminbi as a reserve holding. Recent Chinese intervention into foreign exchange markets suggests that domestic politics trumps any ambition of providing an alternative economic order. A common point of concern across the comments is whether such holdings are made by fair-weather-fan’s of recent Chinese growth or if they are committed partisans willing to stick out difficult times. Given the high levels of uncertainty plaguing the Chinese domestic economy at the moment, this dynamic should soon become empirically testable. Regardless of how such current events play out, the article makes an important intervention in the power politics of monetary policy.

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