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Modern Monetary Theory, Deglobalisation and the Dollar
The article explores the interconnections between the rise of modern monetary theory, deglobalisation and the international monetary system. It discusses the evolution of the international monetary system from Bretton Woods One to Bretton Woods Three, and how this transition is linked to globalisation, and deglobalisation, or the shifts in global imbalances. Finally, it makes an evaluation of the impact of these developments on the role played by the dollar in the international monetary system and its possible future trajectory.
The rise of the modern monetary theory (MMT) in advanced economies (AEs), as classified in the International Monetary Fund’s (IMF) World Economic Outlook, in the wake of the global financial crisis (GFC) and exacerbated by the current COVID-19 crisis, marks the shift to Bretton Woods Three, where the central bank is constrained to pick up larger amounts of sovereign debt as globalisation retreats with the growing decoupling of economies, and sovereign borrowing increases.
The post-war global monetary system was negotiated at the Bretton Woods conference in the United States (US) even as World War II was underway. The agreed Bretton Woods One (Coppola 2020) order was the system of fixed exchange rates agreed at the Bretton Woods conference under which all global currencies were pegged to the dollar, the de facto global reserve currency, which in turn was pegged to a fixed quantity of gold. All countries were expected to settle their international obligations in dollars, while the US did so in gold.
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