How to Move Beyond Monetary Hegemony? Assessing Paths Towards a Global Clearing Union.
Abstract: Reflecting growing geoeconomic tensions, and aggravated by the new trade wars, the expanding BRICS is urgently seeking alternatives to the US dollar as the hegemonic currency. And while the G7 states continue to benefit from, for instance, their central banks’ standing swap lines with the Federal Reserve, even they can no longer take their privileged position within the dollar system for granted. The skill and, to some extent, even the willingness of the US to defend dollar hegemony appear to have eroded. The country’s long-standing “exorbitant privilege” is increasingly seen as an “exorbitant burden”.
More generally, mutual trust is eroding, and the world is fragmenting. Yet, at the same time, the need for multilateral cooperation is only growing. The most serious risks, from climate change to artificial intelligence, are all irreversibly global. Global responses, too, will thereby be needed, whether the relevant actors realize this or not. In monetary affairs, actors should acknowledge that the hegemony of any single state, region, or bloc may not even be in its own long-term interests.
As Keynes and others understood already in the 1940s, a common central bank currency issued and governed by a multilateral institution, such as an International Clearing Union (ICU), is needed. In previous publications, I have argued that an updated Global Clearing Union — a 21st-century version of ICU remains a normatively and institutionally viable idea. But is it a feasible idea given the current trends? This paper outlines and assesses the feasibility of five prima facie plausible paths toward a worldwide clearing union: (1) the existing international institutions path; (2) the dollar system path; (3) the global conference path; (4) the regional arrangements path; and (5) the coalition of the willing path.
In this paper, I also seek to develop a critical social scientific realist approach to feasibility analysis. I defend specific feasibility conditions and criteria that I argue are relevant for assessing the feasibility of possible paths towards a clearing union. Relatedly, the article will summarize relevant parts of a recent Delphi study where a panel consisting of roughly 30 global experts on the topic judged the probability, desirability, and strategic relevance of related scenarios based on their own criteria and/or intuitions. A key result of the Delphi study is that the paths (5) and (4), in this order, were judged the most probable.
I conclude by suggesting that a geopolitical “sweet spot” for the founding of a worldwide clearing union may be emerging: the US is anticipated to gradually lose (and may soon no longer even care about) its monetary hegemony whereas China does not yet quite have the capacity (or perhaps even the desire) to replace the US in this role.
Keywords: Monetary hegemony, Geoeconomic tensions, Global governance, International clearing union, Feasibility analysis, Plausible paths, Delphi study