Book Review
How Global Currencies Work Past Present and
Future
IMFE Assignment
Ronit Agarwal
22BC641
Section I
+91 8167332088
ronitagarwal49@[Link]
Brief about the Author:
How Global Currencies Work: Past, Present, and Future brings together the expertise of three
distinguished economists — Barry Eichengreen, Arnaud Mehl, and Livia Chiţu — each
contributing unique perspectives to the study of international monetary systems.
Barry Eichengreen is a globally respected economic historian and professor at the University
of California, Berkeley. Renowned for his work on international finance and economic history,
Eichengreen has authored several influential books, including Globalizing Capital and Hall of
Mirrors. His research has often shaped policy debates on currency crises, global reserves, and
the evolution of the international monetary order.
Arnaud Mehl is a senior advisor in the Directorate General International of the European
Central Bank (ECB). With a background in international economics and financial markets,
Mehl has published extensively on the international role of currencies, exchange rates, and
global financial integration, making him a key voice in central banking circles.
Livia Chiţu is an economist at the European Central Bank, specializing in international finance
and monetary economics. Her research interests lie in global capital flows and the
international use of currencies, complementing the expertise of her co-authors in
understanding contemporary monetary dynamics.
Together, they offer a comprehensive, data-driven exploration of global currencies through
history and into the future.
Introduction
How Global Currencies Work: Past, Present, and Future by Barry Eichengreen, Arnaud Mehl,
and Livia Chiţu re-examines how international currencies compete, coexist, and rise to
dominance. Challenging the traditional belief in a single leading global currency, the authors
present evidence of a historically multipolar system. Tracing the journeys of sterling, the dollar,
the euro, and the renminbi, the book blends economic history with modern data analysis. It
highlights the roles of trade, financial markets, and geopolitical power in shaping currency
influence. Clear, data-driven, and forward-looking, this book offers vital insights into the past
patterns and future prospects of global money.
Summary
How Global Currencies Work: Past, Present, and Future by Barry Eichengreen, Arnaud Mehl,
and Livia Chiţu offers a thorough re-examination of how international currencies rise, coexist,
and compete for global dominance. The book revisits long-standing economic theories about
currency hierarchy, using newly assembled historical and contemporary data to argue for a
more nuanced and multipolar understanding of the international monetary system. By tracing
the journeys of the British pound sterling, the U.S. dollar, the euro, and the Chinese renminbi,
the authors provide both a historical narrative and a forward-looking analysis of how global
currencies function in trade, finance, and central bank reserves.
The book challenges the traditional theory, established by earlier economists like Charles
Kindleberger, which suggested that the global monetary system is inherently hierarchical and
usually dominated by one leading international currency at a time. Historically, it was believed
that transitions between these dominant currencies — such as from the pound sterling to the
U.S. dollar — happened through abrupt, crisis-driven shifts. Eichengreen, Mehl, and Chiţu
argue that this interpretation oversimplifies a far more complex financial reality. Through
empirical research, they show that historically, multiple currencies have often shared global
roles simultaneously, and that the notion of a zero-sum game, where one currency must fall
for another to rise, is misleading.
A central framework of the book involves understanding three main functions of an
international currency: as a medium of exchange for cross-border transactions, as a unit of
account for pricing goods and services, and as a store of value for both central bank reserves
and private investments. The extent to which a currency successfully performs these functions
determines its international standing. The authors also focus on network effects — the idea
that the more widely a currency is used internationally, the more valuable it becomes to
others. However, while significant, these network effects are not insurmountable. The authors
argue that multiple currencies can and have coexisted at different points in history, with their
prominence shaped by factors such as trade volumes, financial market development, and
geopolitical power.
One of the book’s strengths is its use of an original and extensive dataset covering the use of
various currencies in international reserves, trade invoicing, exchange rate arrangements, and
financial markets over more than a century. This empirical depth allows the authors to test
older economic theories against actual data, producing insights that often contradict
conventional wisdom.
Historically, the book traces the period when the British pound sterling reigned as the world’s
leading currency but reveals that other currencies like the French franc, the German mark,
and the U.S. dollar also played significant international roles during the same era. The
transition from sterling to the dollar, traditionally portrayed as a swift and crisis-driven shift
following World War I or II, is shown to have been a gradual, overlapping process that took
several decades. During the interwar period, for instance, both the pound and the dollar were
used widely in global transactions and as reserve currencies.
The book then turns to the post-World War II monetary order, where the U.S. dollar solidified
its dominance, benefiting from the size of the American economy, the liquidity of its financial
markets, and the geopolitical influence of the United States. Yet even during this period, other
currencies like the German mark and later the Japanese yen played important international
roles in specific regions or financial markets.
The authors also examine the euro’s introduction in 1999 and its initial promise as a
competitor to the U.S. dollar. While the euro quickly gained ground in international trade and
central bank reserves, its potential has been limited by financial market fragmentation,
incomplete fiscal integration within the Eurozone, and recurring sovereign debt crises in
member states.
The book assesses the recent rise of the Chinese renminbi as well. Though still a relatively
minor player compared to the dollar and the euro, the renminbi has made notable progress
in international trade settlements and regional financial markets. The authors attribute this to
China’s deliberate policies, such as establishing bilateral currency swap agreements,
developing offshore renminbi centers, and gradually relaxing capital controls. However,
limitations in China’s financial market openness, legal infrastructure, and capital account
convertibility mean the renminbi is not yet in a position to rival the dollar’s dominance.
Throughout the book, several factors are identified as determinants of a currency’s
international status. These include the issuing country’s share of global output and trade, the
depth and openness of its financial markets, macroeconomic and political stability, and
network externalities. Geopolitical influence and active policy promotion also play critical
roles. The authors emphasize that no single factor is sufficient on its own; rather, it is the
interaction of these factors that allows a currency to gain and maintain international
prominence.
One of the book’s central conclusions is that the future of the international monetary system
is likely to be multipolar rather than dominated by a single currency. The authors predict that
while the U.S. dollar will remain a key player, the euro and renminbi will continue to expand
their international roles. Rather than one currency displacing another, these major currencies
are expected to coexist, offering businesses, central banks, and investors more diverse
options. This multipolarity could enhance the resilience of the global financial system by
distributing economic risks more evenly, though it may also introduce new coordination
challenges, particularly in times of crisis.
The authors offer several policy implications based on their findings. For emerging market
economies, they suggest that gradually promoting their currencies for international use can
yield benefits, provided these countries also work toward financial market development,
macroeconomic stability, and institutional credibility. For established economic powers, the
authors stress the importance of preserving open and liquid financial markets, stable
monetary and fiscal policies, and confidence in the legal and regulatory environment. They
also highlight that issuing a global currency comes with international responsibilities, such as
providing liquidity in times of crisis and maintaining stability in the broader financial system.
In conclusion, How Global Currencies Work is a substantial contribution to the study of
international finance. It revises outdated economic theories with rich empirical evidence,
presenting a convincing case for a historically multipolar and increasingly competitive global
monetary landscape. Combining economic history, data-driven analysis, and policy insights,
the book offers a nuanced understanding of the past, present, and likely future of international
currencies. Its accessible yet rigorous approach makes it essential reading for students,
policymakers, financial market participants, and anyone interested in the evolving structure
of global finance.
Positives of the Book
1. Rigorous, Data-Driven Analysis Rooted in Original Historical Datasets
One of the book’s greatest strengths lies in its extensive use of newly compiled, long-
run historical data covering over a century of currency use in trade, reserves, exchange
rates, and financial markets. Eichengreen, Mehl, and Chiţu went beyond conventional
wisdom and theoretical assumptions by grounding their arguments in meticulously
gathered empirical evidence.
This data-driven approach enables the authors to challenge long-held beliefs about
the supposed monopoly of single dominant currencies and demonstrate, with
concrete historical trends, that multiple currencies have often coexisted in the
international monetary system. By relying on hard data rather than speculative
narratives, the book enhances its credibility and provides a more accurate, nuanced
picture of the evolution of global currencies. It also offers readers valuable insights into
how history can be empirically interrogated, setting a new standard for research in
international monetary economics.
2. Challenges Conventional Economic Theories with a Refreshingly
Multipolar Perspective
Another major positive is how the book revisits and revises prevailing theories about
the international monetary order. Traditional economic thought, led by scholars like
Charles Kindleberger, posited that the global financial system functions best under a
single dominant currency — a theory the authors convincingly challenge.
Through historical analysis and empirical evidence, Eichengreen and his co-authors
argue that the international monetary system has historically been multipolar, with
several currencies sharing global roles at the same time. This perspective is not only
historically accurate but also highly relevant in today’s context, as the U.S. dollar faces
growing competition from the euro and the Chinese renminbi.
The book’s willingness to question established academic assumptions and offer a fresh
framework for understanding international currencies is intellectually stimulating and
reflects the dynamism of economic scholarship. It encourages policymakers,
academics, and students to rethink oversimplified models and better appreciate the
complexities of global monetary power.
3. Balanced Blend of Economic History, Theory, and Policy-Relevant
Insights
A particularly commendable feature of this book is its ability to seamlessly integrate
economic history, theoretical frameworks, and practical policy implications. The
authors don’t limit themselves to abstract discussions or historical storytelling —
instead, they draw clear connections between past monetary arrangements and
present-day challenges, offering foresight into future developments in the global
currency landscape.
The book concludes with thoughtful discussions on what a multipolar monetary
system would mean for global financial stability, monetary policy coordination, and
emerging market economies. It also outlines the conditions under which newer
currencies like the renminbi could strengthen their international role, providing
valuable guidance for policymakers.
This well-rounded structure ensures the book appeals to a broad audience — from
academics and students of international finance to central bankers and financial
market practitioners. It transforms what could have been a dry, technical subject into
an engaging, policy-relevant narrative.
Criticisms of the Book
1. Understates the Role of Domestic Political Institutions and Public
Perception
While the book provides a comprehensive macroeconomic and geopolitical account of
currency internationalization, it tends to underemphasize the influence of domestic
political institutions, legal transparency, and public trust in determining a currency's
international role. These factors are crucial for ensuring stability and credibility —
especially in the context of emerging economies like China.
For instance, the renminbi’s limited adoption isn't just a function of capital controls or
market depth, but also of political opacity, weak rule of law, and state intervention in
markets. Although the authors touch on these issues, a more explicit and detailed
discussion of how institutional quality shapes global confidence in a currency would
have enriched their argument, especially in a world where political risk is increasingly
priced into financial markets.
2. Limited Exploration of Private Digital Currencies and Financial
Innovation
The book was published in 2017, and while forward-looking in many respects, it
doesn't deeply engage with digital currencies, fintech innovations, or the growing role
of decentralized finance (DeFi) — all of which have rapidly begun reshaping the global
monetary landscape.
Private cryptocurrencies like Bitcoin and stablecoins such as USDT (Tether) or USDC, as
well as central bank digital currencies (CBDCs), raise new questions about how
“currencies” are defined, trusted, and used internationally. While the book discusses
future trends, the lack of a sustained discussion on these innovations — especially
given their disruptive potential — feels like a missed opportunity to connect traditional
monetary theory with emerging realities.
3. Eurozone Challenges Could Have Been Explored More Critically
The book presents the euro as a strong candidate for a multipolar world, which is valid
to some extent. However, it somewhat glosses over the structural weaknesses of the
Eurozone — such as the lack of a common fiscal authority, persistent internal
imbalances, and political fragmentation — which have repeatedly threatened the
euro’s stability and limited its global appeal.
A more critical engagement with the euro’s constraints, especially in contrast with the
U.S. dollar’s institutional backing (e.g., U.S. Treasury markets and a unified political
system), would have added depth to the multipolar thesis. It would also help explain
why the euro, despite favourable conditions and an early head start, has not overtaken
or equalled the dollar in many key domains.
Conclusion
How Global Currencies Work: Past, Present, and Future is a significant and timely contribution
to the study of international finance and economic history. Through its meticulous data-driven
analysis, the book successfully challenges longstanding theories about the dominance of
single international currencies, offering instead a persuasive argument for a historically
multipolar and increasingly competitive global monetary system. The authors’ integration of
historical evidence, economic theory, and policy-relevant insights makes the book both
intellectually engaging and practically valuable for scholars, policymakers, and financial
practitioners alike.
However, while the book excels in many areas, it leaves certain dimensions underexplored.
The limited attention to domestic political institutions, public trust, and financial innovations
such as digital currencies constrain its relevance to some of the most pressing contemporary
monetary debates. Furthermore, a more critical examination of structural weaknesses within
the Eurozone would have strengthened its multipolar thesis.
Despite these limitations, the book remains an authoritative work that reshapes our
understanding of how global currencies rise, coexist, and evolve. It offers valuable lessons
from history and thoughtful predictions for the future, making it essential reading for anyone
seeking to comprehend the complex forces shaping the international monetary order in an
increasingly interconnected world.
