Strategic Panorama 2009 - 2010 - IEEE

The global recession and its impact on international economic relations
their rate of savings, both because they are hugely indebted and because
the real estate debacle has reduced their net wealth. As the emerging economies
(above all China) still have very high savings rates and Germany
and Japan do not seem likely to increase their domestic demand or their
exports, there will be no substitute for the US consumer, and the world
economy will therefore have to adapt to a lower level of expenditure (it is
estimated that as a result of the crisis US consumers will cease to spend
800 billion dollars per year, approximately half of Spain’s GDP).
Dollar-euro rivalry for global monetary leadership
Another important question that has arisen following the eruption of the
international financial crisis is the future of the dollar as a global reserve
currency. Indeed, after dominating the international monetary system for
decades, the dollar’s leadership is beginning to be questioned. But as we
shall see, this does not mean that the greenback is going to replaced in
either the short or the medium term. Everything would appear to indicate
that the world economy is heading for a slow transition leading to a situation
in which three reserve currencies will coexist in the long term: the
dollar, the euro and the yuan. Let us now examine why.
Before the crisis America’s huge current account deficit and the rapid
accumulation of dollars by the central banks of the emerging economies
(especially of China and the oil exporters) led to the steady depreciation
of the dollar, particularly against the euro. At the same time, a few central
banks, worried about the solvency of the United States, began to consider
the need to diversify their reserves, as a result of which the dollar lost a
certain amount of market share to the euro in both international transactions
and global reserves. Nonetheless these movements were timid, as a
massive sale of dollars would generate sizeable losses precisely for countries
which, like China, possess substantial assets in the US currency.
This tendency was suddenly interrupted by the panic which swept
across the markets following the bankruptcy of Lehman Brothers in
September 2008. The financial crisis triggered a «flight to security» which
led to a sharp appreciation of the dollar, even through the crisis had taken
hold in the United States. However, now that the financial markets are
starting to get back to normal, there is a return to the pre-crisis situation in
which external deficit and the accumulation of US debt, added to the rigidity
of Chinese exchange rates, are again tipping the scale of adjustment
of global imbalances towards an appreciation of the euro.
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