The Global Seigniorage Duopoly

The inadequacy of global liquidity provision and the unequal distribution of its benefits stem from a fundamental distortion: the exercise of market power by the two largest issuers of international currencies.  The United States and Europe jointly provide the currencies used for 79 percent of global reserves and 91 percent of trade invoicing, forming a duopoly in the means of payment used by the world economy. The exercise of this market power allows them to capture the bulk of seigniorage rents associated with the provision of global liquidity while constraining developing country growth and limiting the scope of global countercyclical policies.  Were the International Monetary Fund to comply with its statutory obligation to make Special Drawing Rights the principal reserve asset in the international monetary system, developing countries would gain access to a source of finance currently monopolized by advanced economies.