With this strict definition in mind, I will make four main observations. An asymmetric world First, the current world is highly asymmetric. Two major currencies – the US dollar and the Euro – account for most of the foreign exchange reserves. One of them, the dollar, clearly dominates in financial markets and payment systems. This asymmetry has many well-known and self-reinforcing consequences. US monetary policy has significant effects well beyond the US economy. Those monetary spillovers may be especially important when unconventional monetary policies are implemented. They cast new doubts on the insulating properties of floating exchange rates. BIS central bankers’ speeches  1  They create new incentives, for many emerging economies, to manage their exchange rate and, for that purpose, accumulate dollar-denominated foreign exchange reserves. As a consequence, most, but not all, of the official liquidity provided through multilateral mechanisms is denominated in dollars. The rise of the euro The major innovation of the last decade has been the rise of the euro. It offers some interesting insights and lessons. Most economic models and historical examples suggest that the appearance of new world currencies would trigger huge portfolio adjustments and create major turbulences. Economists also hypothesized that, in a multicurrency world, portfolio shifts would create permanent exchange rate instability. None of this has happened. In fact, the euro has neither stabilized nor disrupted the international monetary system. Exchange rates have moved significantly but, most of the time, in an orderly fashion and have followed low periodicity cycles.
This may be, for the future, an interesting precedent: a new global currency can emerge without destabilizing the system. It is also worth noticing that the euro crisis had no major effect on its international role. In particular, the share of foreign reserves invested in Euro securities has barely moved. And, when the Swiss authorities decided to peg their currency, they chose the euro as an anchor. Does the euro have a “sphere of influence”? As you know, we have taken a very neutral stance on this issue and neither encouraged or discouraged the use of the euro as a reserve currency. In fact, the euro is increasingly used in international transactions and accepted for payments (including retail ones) in many countries – as European tourists can experience every day. Recently, the Eurozone seems to exert a stronger influence on global monetary conditions. For the first time in many decades, long-term rates in Europe have significantly decoupled from those of the US. Also, there is some evidence of “reverse causality” with Euro long term rates increasingly impacting US rates, creating new channels for monetary spillovers and feedbacks. However, the euro is not yet widely used as a unit of account: most global transactions – especially in commodities – are denominated in dollar. A majority of new securities issuances are also denominated in dollars. New global currencies? As the geography of the world economy changes, so will the shape of the international monetary system.