ABSTRACT
One of the most remarkable developments in global monetary relations at century’s end is the rapid acceleration of cross-border competition among currencies-a spreading, market-driven phenomenon that I have elsewhere called the deterritorialization of money (Cohen 1998). Circulation of national currencies is no longer confined within the territorial frontiers of nation-states. A few popular currencies, most notably the U.S. dollar and German Deutschmark (DM) (now being succeeded by the euro), have come to be widely used outside their country of origin, vying directly with local rivals for both medium-of-exchange and investment purposes. Competition is intense and, as in most competitions, success is largely a matter of survival of the fittest. The result of this phenomenon has been a fundamental transformation of
the geography of money, the broad configuration of global currency space. Where once existed a familiar landscape of relatively insular national monetary systems-in effect, a simple map of neatly divided territorial currenciesmonies have now become both more entangled and more hierarchical. My image for this new geography is the Currency Pyramid: narrow at the peak, where the strongest currencies dominate, and increasingly broad below, reflecting varying degrees of competitive inferiority. A few monies enjoy the power and prestige of high rank; more constrained policy options are available to the issuers of many others. The highest standing is enjoyed by the dollar, the use of which predominates for most, if not all, cross-border purposes. Closest competition comes currently from the euro-newly created by Europe’s Economic and Monetary Union (EMU)—and the Japanese yen, although neither currency can as yet claim anything like the universal appeal of America’s greenback. What are the prospects for today’s top international currencies in the
twenty-first century? The purpose of this essay is to take an objective new look at this critical question, giving particular emphasis to the factors most likely to influence the rivalry and rank of the top currencies over time. To put the discussion in perspective, I begin with a few basic statistics on crossborder currency use. I then explore the way in which the future of the top currencies may be influenced by the logic of market competition, the strategic
preferences of national governments, and prospective technological developments. Analysis suggests little near-term threat to the predominance of today’s top currencies, although relative standing could be substantially altered by market competition, which in turn could lead to intensified policy competition among issuing authorities. Over the longer term, however, stretching further into the next century, technological developments could lead to the creation of entirely new rivals to today’s top currencies, thereby transforming the geography of money virtually beyond recognition.
