China vs. U.S.: IMS Meets IPS
Currently both the International Monetary System (IMS) and the International Price Systems (IPS) are dominated by the U.S. The emergence of China, both as reserve currency and as a currency of invoicing, is likely to disrupt this status quo. We provide a framework to understand the forces that will shape this transition and identify sources of instability. We highlight the risk of an abrupt shift triggered by a run on the dollar.
In Preparation for AEA Papers and Proceedings. We are grateful to the chair of the AEA session, Annette Vissing-Jorgensen, and our discussant, Arvind Krishnamurthy. We acknowledge the support of the NSF (1653917) and Weatherhead Center. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.