The new multi-polar international monetary system

Backed by rapid economic growth, growing financial clout, and a newfound sense of assertiveness in recent years, the BRIC countries - Brazil, Russia, India, and China - are a driving force behind an incipient transformation of the world economy away from a US-dominated system toward a multipolar one in which developing countries will have a major say. It is, however, in the international monetary arena that the notion of multipolarity - more than two dominant poles - commands renewed attention and vigorous debate. For much of its history, the quintessential structural feature of the international monetary system has been unipolarity - as American hegemony of initiatives and power as well as its capacity to promote a market-based, liberal order came to define and shape international monetary relations. As other currencies become potential substitutes for the US dollar in international reserves and in cross-border claims, exchange rate volatility may become more severe. There are also risks that the rivalry among the three economic blocs may spill over into something more if not kept in check by a strong global governance structure. While the transition will be difficult and drawn out, governments should take immediate steps to prevent financial volatility by enhancing cooperation on monetary policies, currency market intervention and financial regulation.