The Long March Towards a Multipolar Monetary Regime

International monetary reform is back on the agenda after two decades during which it has been hardly discussed. Controversies about the macroeconomic and monetary factors at the root of the financial crisis, China's exchange rate regime, the reasons why emerging countries accumulated about five trillion dollars of international reserves over the last ten years, and more recently the risk of currency wars all explain this renewed attention. Yet the key question is what monetary regime will best suit the world economy in the XXIst century. An evolution towards a multipolar system, with the dollar, the renminbi and the euro as its key likely pillars may mitigate some flaws of the present regime, such as the rigidity of key exchange rates, the asymmetry of balance-of-payments adjustments or what remains of the Triffin dilemma. However it may exacerbate other problems, such as short-run exchange rate volatility or the scope for ‘currency wars', while leaving key questions unresolved, such as the response to global liquidity provision. Hence, in itself, a multipolar regime can be both the best and the worst of all regimes, depending on the degree of cooperation within a multilateral framework. In the short term, policymakers should concentrate on feasible reforms, while opening the way for more fundamental changes.