For instance, if US Treasury bonds continue to be considered the only liquid and safe asset around the world, then there will be growing excess demand for these assets, keeping US interest rates at a low level. In turn, low interest rates in the United States will have two consequences. First, they will slow down the movement of deleveraging in this country: less saving means more external deficit, hence a continuation of external debt accumulation by the United States. Second, low interest rates in the United States will contaminate monetary policies in all countries that stabilize their exchange rate against the US dollar - that is a majority amongst emerging economies. These countries have good growth prospects, but also a good potential for inflation and speculative bubbles, so too loose monetary policies could destabilise these economies.

Moreover, if the dollar remains the cornerstone of the international monetary system, the Federal Reserve will need to continue to act as an international lender of last resort as it did during this crisis, by lending to foreign central banks the dollars to revive the dried up funding in their respective currency. The Fed helped to contain the liquidity crisis, and the international monetary system did not collapse. But will it act the same way in a future crisis? Will political considerations never interfere with the Fed’s decision to swap liquidity with foreign central banks?

In the last two years, China has taken modest but significant steps to internationalize its own currency. Although the growth rate of trade settlement in renminbi is impressive, China starts from very far away. Decisive steps, such as the liberalization of both inward and outward capital flows and strengthening the rule of law, still need to be taken before the renminbi can really compete with the dollar. These steps will take time, perhaps ten years or more. In the meantime, the only credible currency to complement to the dollar for the different functions of an international currency will remain the euro, provided it survives the present crisis.

The euro already fulfills some of the functions of an international currency – trade invoicing and settlement, invoicing of international bank loans and financial assets, foreign exchange turnover. It is favored by its weight in global trade but handicapped by its political fragmentation, manifested today in this sovereign debt crisis.

Political integration would be an ambitious but effective way to cure this crisis. If Europeans take the leap, it will be for internal reasons. But they will also service the international community by offering a second international currency alongside the dollar. This is not to replace the dollar as the key currency of the system but only to provide a source of diversification for official and private reserves. The emulation that would result between the two areas could prove stabilizing by reducing the risk that either of the two engages in an unsustainable path.
 

Thus, if the emerging countries were to contribute financially to the resolution of the European crisis, it would not be out of philanthropy. It is in the interest of nobody to see the European market collapse. The euro area, if preserved, may well be a starting point for a move of the international monetary system towards a multipolar global economy.