Prompt
Transfer the dollar as a key currency and international currency, the US dollar, to the IMF
Gemini’s answer
The theme of transitioning and reorganizing the role of the US dollar as a ‘key currency (international currency)’ to the IMF (International Monetary Fund) and its alternative assets (such as SDRs) is an important issue that has been discussed for many years in international finance theory and discussions on monetary systems.
I will organize the mechanisms, benefits, and realistic challenges of this concept (‘transition from a dollar-based system to an SDR/IMF-led system’).
1. Basic mechanism of transfer and transition
When transitioning from an international monetary system heavily weighted toward the US dollar to a system centered on the IMF, the following frameworks are mainly considered.
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Internationalization and expansion of SDRs (Special Drawing Rights)
Currently, SDRs are merely reserve assets for member countries, but their functions would be expanded and liberalized so that they can be used directly for trade settlement, international financial transactions, and bond issuance. -
Making the IMF an ‘International Central Bank’
Strengthen the IMF’s automatic liquidity supply and lending functions to allow it to function as a de facto global central bank (reserve bank). -
Establishment of a ‘Substitution Account’
A mechanism where central banks of various countries deposit their large holdings of US dollar reserves into the IMF and are issued and granted SDR-denominated reserve assets in return, allowing for a smooth transition while preventing a sharp drop in the US dollar.
2. Benefits of shifting to an IMF/SDR-led system (logical background)
The main significance of breaking away from dollar dependence and transferring key currency functions to the IMF is as follows.
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Resolution of the Triffin Dilemma
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Problem: A structural contradiction (dilemma) where, if a single country’s currency (the US dollar) is the key currency, the US must continue to run current account deficits to supply liquidity to the world, which leads to a decline in the credibility of the US dollar in the long term.
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Improvement: If a multilateral institution like the IMF manages and issues liquidity, it becomes possible to supply liquidity according to global economic conditions and supply-demand without depending on the current account balance of a specific country.
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Reduction of spillover risks from US domestic politics and interest rate policies
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Because the monetary policy (rapid interest rate hikes or cuts) of the US Federal Reserve (FRB) is decided with priority given to the US domestic economy, it is prone to causing capital inflows and outflows from emerging countries and drastic changes in exchange rates. Under IMF management, financial adjustments from a global perspective would be expected.
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Neutrality against geopolitical risks and the ‘weaponization’ of currency
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In response to the use of exclusion from dollar payment networks (SWIFT, CHIPS, etc.) through financial sanctions, there is growing momentum, especially among non-aligned and emerging countries (BRICS, etc.), to seek more politically neutral international reserve assets.
3. Realistic barriers and challenges
While theoretically considered rational, there are extremely high barriers to its realization.
| Challenge Item | Main Reasons/Details |
| — | — |
| US opposition and veto power | The US has no reason to give up the economic and geopolitical benefits of the dollar being the key currency (seigniorage, unlimited ability to issue government bonds, etc.). Also, important IMF resolutions require 85% or more approval, and since the US holds more than 15% of the voting rights on its own, it has veto power. |
| Liquidity and convenience in private markets | The biggest reason the dollar is the key currency is its ‘absolute liquidity’ due to the US’s massive government bond market and highly developed financial and payment networks. Since SDR-denominated private transactions (private bank accounts, trade settlements, financial products) hardly exist, it cannot win on convenience. |
| Difficulty in governance and decision-making | The issue of decision-making capability regarding whether the IMF, where the interests of various countries conflict, can provide rapid and bold funding and regulation during global inflation or financial crises. |
4. Future Outlook and Realistic Scenarios
The possibility of a complete “transfer from the dollar to the IMF (SDR)” occurring in the short term is considered extremely low. Instead, a scenario of gradually moving toward “multipolarization” or a “complementary system” is more realistic.
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Transition to a Multi-Currency System (Multipolarization)
As the ratio of the euro, yuan, or regional currency settlements increases from the dollar’s unipolar concentration, and the dollar’s share gradually declines in correlation, the SDR will play a complementary role. -
Rise of CBDCs (Central Bank Digital Currencies) and Multilateral Settlement Infrastructure
Through international settlement platforms led by the IMF and the Bank for International Settlements (BIS) (e.g., the BIS mBridge project), multilateral settlement networks using synthetic currencies like the SDR or digital currencies will partially permeate.
Are there any aspects regarding the reorganization of the dollar-based system or specific issues (such as the SDR mechanism or geopolitical impacts) that you would like to delve into further?
PR
