Is the Dollar Becoming a Negotiated Currency? Evidence from the Emerging Markets

Abstract

This article proposes a cognitive and empirical approach, based on in-depth semi-structured elite interviews, to analyse the extent to which the dollar is becoming a negotiated international currency in the perception of financial elites in China, Brazil and the countries of the Gulf Cooperation Council. It shows that while the greenback is still the top currency in the system due to a lack of alternatives, its long term dominance is questioned because its economic pre-eminence and its political leadership are perceived to be fading. This in turn is stimulating financial elites in emerging markets to promote alternative regional monetary frameworks and the internationalisation of their own currencies. The article explores how financial elites in key dollar holding countries react to the US ‘exorbitant privilege’ of not facing disciplinary constraints in its economic policies. It then examines how the US has been able to misuse its central position in the system by delaying and deflecting adjustment costs upon others, and illustrates the disapproving response that this has provoked in emerging markets and Europe. Finally, it concentrates on Chinese proposals to renegotiate the status of the dollar in the system and why these have been hitherto rejected by the US.