This paper analyses the architecture of the International Monetary System (IMS)
and the role of reserve currencies in it. We begin by describing the evolution
of the IMS from the Gold Standard to the Bretton Woods system and the European
integration process that led to the creation of the euro. We then discuss the
role played by the euro in the IMS as an international reserve currency. Drawing
on econometric estimations, we extrapolate the evolution of the shares in
international reserves of the euro, the US dollar and the renminbi. In the
discussion, we take into account the current sovereign debt crisis and the
possibility of a currency war taking place as a result of the reportedly
excessive undervaluation of the renminbi and of the expansionist monetary
policies undertaken in several advanced economies, namely in the USA. The text
ends with a review of proposals for reducing the likelihood of currency wars,
which may disrupt the functioning of the current IMS.
JEL Classification: E52;
F31; F33; G15.
Keywords: Currency War; Euro; Financial Crisis; International Monetary
System; Exchange Rate Misalignments.