Does the Dollar Global Financial System Simply Intermediate Savings?

The main point of this article is to debunk the idea that the global monetary and financial system simply intermediates savings across countries. A corollary of this idea is that US hegemony derives from the recycling of the savings of countries with surplus current accounts to those with deficit current accounts. This article argues that the international monetary system creates dollar-denominated assets and liabilities regardless of the current account positions of the countries in which borrowers reside. Furthermore, it is argued that the hegemony of the United States does not depend on the recycling of foreign surpluses. It enjoys a privileged position as a result of the differential in the return of its foreign investments compared to those of other countries, particularly emerging and developing countries. However, this yield differential does not depend only on liquidity, as the proponents of the money view argue, but also on the economic policies that emerging and developing countries put in place. This article argues that the international monetary system is rapidly changing. A sign of this change is the different composition of external financial assets in China’s balance of payments, with a greater share of loans to developing countries than foreign reserves.