Cracks in the Global Monetary Architecture

The current international monetary system is based on a dollar standard, functioning within a framework of global cooperation aimed at providing public goods such as free trade, financial stability and price stability. Trade wars, the widespread use of sanctions, widening US fiscal gaps are undermining confidence in the dollar, while other currencies struggle in establishing themselves as viable global options. The erosion of a universally recognised safe haven currency is leading to increased volatility in foreign exchange markets and heightened risks of financial instability. Rather than promoting deeper integration, the different approaches followed in the digitalisation of finance in various jurisdictions risks accelerating market fragmentation. International cooperation should be reinforced and Europe can play a key role in fostering it. It is essential to counteract fragmentation in goods and financial markets and preserve the international community’s ability to address pressing global challenges, including the climate crisis and rising global debt levels.