The Future of Offshore Dollar Creation: Four Scenarios for the International Monetary System by 2040

Abstract

In order to sketch the possibility space for the future setup of the International Monetary System (IMS), this paper develops four different scenarios that outline potential outcomes of the IMS’s evolution by 2040. These scenarios derive from the analytical exercise of adopting a Money View perspective of today’s institutional shape of the IMS. The paper argues that the IMS’s current setup crucially relies on the supply of US Dollar-denominated credit money forms issued by private and public institutions outside the United States — through Eurodollar deposits, central bank swaps as well as ‘shadow money forms’ created by non-banks such as overnight repurchase agreements, money market fund shares and foreign exchange swaps. As this ‘realm’ of offshore dollar creation forms the heart of the present IMS, the four scenarios project potential institutional developments in coming decades following different trajectories. The Continued Dollar Hegemony scenario depicts the sustained dominance of private international money creation via offshore dollars within the Pax Americana. The Competing Monetary Blocs scenario envisions the US, the EU, and China as three gravitational centers with private international money creation in the blocs’ peripheries via offshore dollars, offshore euros and offshore renminbi. In the International Monetary Federation scenario, countries have created a strong publicly organized IMS, comprising a multilateral framework of one international and several regional clearing unions, based upon Keynes’ ideas for an International Clearing Union. Finally, the International Monetary Anarchy scenario entails the post-crisis emergence of a non-system with a substantial breakdown of public and private international monetary cooperation and creation. This discussion paper is the first in a series of two complementary pieces on the past, present and possible futures of the International Monetary System. It is based on the theoretical and historical foundations developed in the paper “Offshore Dollar Creation and the Emergence of the Post-2008 International Monetary System”, authored by Steffen Murau (https://ssrn.com/abstract=3191981).