The Financial and Monetary System: A Study on the Structure of the Financial and Monetary System in the World and Lessons for Vietnam

Abstract

The US-China trade war, the COVID-19 pandemic, and now the Russia-Ukraine conflict have led to a new consensus from developed economies that it is necessary to reduce interdependence... However, this process of lowering interdependence has led the world to rising inflation, labor shortages, rising protectionism, shocks to the global financial system,... Will this change the international monetary and financial system? The following article has analyzed the trend of globalization in the new context and its impacts on the World Monetary and Financial System, thereby recommending a trade scenario for Vietnam.  The global monetary and financial system is undergoing drastic changes, as reflected in the increase in multi-currency trade activities and new technological platforms for cryptocurrencies. These are gradually becoming a challenge to the current monetary and financial system under the dominance of the US dollar (also known as the Petrodollar system). Looking back at the history of the global monetary and financial system, a new system will replace the current system to solve bottlenecks or inefficiencies over time. Recently, economists mentioned three significant vulnerabilities in the Petrodollar system, including a persistent US trade deficit, which causes long-term imbalances; the encouragement of mercantilism, thus stimulating the actions of currency manipulation by trading partners; assets and liabilities in countries outside the United States are denominated in dollars, leading to a more robust/weaker dollar, similar to quantitative tightening/easing in those countries, which means that these countries lose their independence in monetary policy. These vulnerabilities are being challenged by the US monetary and fiscal policy itself in the post-Covid period, as well as the rise of major economies. Therefore, perhaps it is time for the world to develop a new monetary and financial system to limit its inefficiency through self-regulation mechanisms or create an entirely new system to replace it. In our view, although there are no apparent signs of the collapse of the current system, there have been changes in the system's operation. On the one hand, these changes are manifested in the dollar's role in international trade, especially in the valuation of energy, which is gradually being replaced by other currencies; on the other hand, it is reflected in the shift from fiat currencies to cryptocurrencies. Cryptocurrencies are creating certain positive benefits in promoting international trade, but they also create considerable challenges in the monetary management role of central banks.