‘How and why to make a currency global? An infrastructural comparative study of the Eurodollar and the international Yuan cases’
Clément Berthou & Jean-François Ponsot, Université Grenoble Alpes
The post-WWII US dollar and the nowadays Chinese yuan are two currencies on the rise on a global scale. While the second is not guaranteed to play a significant role amidst an asymmetric USD-centered international monetary system, it still makes a ground for study given the recent Chinese monetary infrastructural developments. Introducing concepts of symbolic and infrastructural monies and highlighting the role of monetary intermediaries, this paper focuses on the methods and motives developed by Washington and Beijing to make their currencies global.
The first transnationalization process appears as the result of a public/private interests-oriented iteration through what Strange (1996) calls triangular diplomacy. Itself supported by the UK-US Special relationship while the British pound was sinking and London was willing to protect a bit of its financial dominance. The yuan transnationalization process is alternatively a State centered methodical approach structured around the "3C" framework (convenience, confidence, and control) leveraging the current characteristics of the monetary system and capitalizing on the global importance of the Chinese production tool.
On these paths, Washington and Beijing gave birth to articulated money ecosystems composed of dedicated payment infrastructures, liquidity channels distributed between public and private monies, and domestic vs. cross-border regulatory trade-offs. In other words, Washington and Beijing relied on the infrastructural dimension of money to promote the symbolic dimension and enjoy the benefits of a global currency.
For the US dollar and the Chinese yuan, currency transnationalization strategies remain deeply domestic-centered. They both aim to benefit local economies without threatening domestic stability. However, their foreign adoption strategies rely on liquidity needs, being in a liquidity-dry post-WWII booming economy or a weaponized monetary system seeking settlement alternatives. Unlike the post-WWII United States, today's China cannot count on a scuttling of the currency leader. While the UK chose not to expose its reserves to the defense of the international role of the pound amidst a gold-convertible system and domestic turmoil, the current floating situation no longer appears as a challenge for the domestic US economy. On the contrary, maintaining the USD at the top of the currency pyramid is a sine qua noncondition to protect the US lifestyle. The latter derives from the ability of the United States to incur debt in its currency, the perception of that debt as risk-free, and the dependence of global value chains on the dollar.
Clément Berthou is a PhD candidate at Laboratoire PACTE, Université Grenoble Alpes, focusing on payment infrastructures. Clément also heads the Network Management team of Société Générale, supervising the commercial payment routing strategy of the banking group.
Jean François Ponsot is Full Professor of Economics at Pacte (CNRS) UGA (Université Grenoble Alpes). He used to be Researcher at the Central Bank of Ecuador, as well as Assistant Professor at Laurentian University.