What Is International Diversification?

International reserve currency diversification means that during the period of the international gold standard, the pound was the main international reserve of each country; after the fixed exchange rate system centered around the US dollar, the pound was replaced by the US dollar. Under the current floating exchange rate system, in addition to the US dollar, the mark, and the yen, the international reserves of various countries also include the pound sterling, the French franc, the Swiss franc, and the Dutch guilder. A pattern of diversified reserve currencies has emerged. ^[1] The structure of a diversified international reserve currency provides a variety of clearing currencies for the international economy, freeing it from overreliance on the US dollar under the Bretton Woods system; diversified exchange rate arrangements to meet the needs of diverse, differently developed countries It provides flexibility and independence for countries to maintain economic development; flexible and diverse adjustment mechanisms make the adjustment of the balance of payments more effective and timely. ^[2-4]

International reserve currency diversification

Global Consumption and Savings

On July 4, 2009 "

A single international reserve currency is not conducive to the stability of the financial system, and diversification is the inevitable direction for its development.

Historical experience shows that when a reserve currency issuing country has a long-term deficit, the note-issuing country uses its currency position to enjoy physical resources, and as the currency continues to be exported, it causes the currency to depreciate, thereby making the reserve assets accumulated by other countries safe. Under threat, this currency is no longer suitable as a currency reserve. It is clear that a single sovereign currency serving as the international reserve currency is no longer adapted to the status quo of global economic development. The long-term trend of reserve currency development is diversification.

For a long time to come, both the reserve currency and the international financial system will undergo a long process of evolution. In the process of diversifying international reserve currencies, the exchange rate is a crucial issue. If the exchange rate is controlled, there is arbitrage space and capital flows, so that the note-issuing countries will enjoy it, and the non-reserve currency countries will be passively worried. At the same time, increasing non-reserve currency issuing countries foreign exchange reserves and conducting sovereign wealth fund operations are self-protection actions to prevent exchange rate risks. The management of foreign exchange reserve assets should consider strategic allocation, not temporary profit and loss.

Academic discussion

Li Yang, director of the Institute of Finance of the Chinese Academy of Social Sciences, believes that the global economic imbalance is the root cause of the financial crisis, and the diversification of international reserve currencies can fundamentally correct this imbalance, which is the inevitable direction of world economic development. The global economic imbalances that caused the financial crisis are manifested as deficits and surpluses. The deficit side is mainly the United States, which has remained basically unchanged since 1971; the surplus side has been played by many countries and groups of countries.

Government statement

On July 2, 2009, Chinese Vice Foreign Minister He Yafei said that China hopes that the international monetary system can be diversified in the future. He Yafei said at a news conference that he had not heard of China's request to discuss the issue of global reserve currencies at the G8 summit in Italy, but said that the summit may discuss related topics. Considering the status of the US dollar as the main reserve currency, China wants the US dollar to remain stable.

At the Rome G8 summit, Vice Foreign Minister He Yafei, who accompanied President Hu Jintao, said that the creation of a supersovereign international reserve currency is currently only a discussion in the academic community, not the position of the Chinese government. He Yafei's clarification has given all circles a new understanding of super-sovereign currencies.