The dollar dominance: Recent episode of trade invoicing and debt issuance

Abstract

The international monetary system is known to be asymmetric given the dominant use of a few international currencies. The international trade of developing countries is mainly invoiced in US dollars, unlike industrialized countries which invoice a much higher share of their exports in their home currencies. The same logic is at work in the issuance of international debt. While the attempts to challenge the supremacy of the US dollars have failed in most cases, China is coming to the fore and is increasing its use of the Renminbi, even supported by its growing recognition within the International Monetary Fund. By reassessing the relevance of existing academic works, this paper demonstrates how monetary asymmetries have been reinforced in recent decades, and offers explanations related to currency choices. Finally, this paper offers the conclusion that international monetary reform is necessary. One cannot overlook that the monetary system embodies a major constraint on the sovereignty of developing countries and that some developing countries have set out to challenge the US dollar usage.