Skirmishing Currencies

During and immediately after the last global crisis exchange rates have shown peculiar behaviour and sometimes heightened instability. This is particular worrying as skirmishes are among the US dollar and the euro, the two pillars of the current international reserve system, but also among such key currencies such as the yen and the renminbi and the other two currencies. The paper explores, in particular, how national interests explain the renminbi's return to a fixed peg to the dollar from 2008 to 2010 and how internal problems are behind the recent euro's slide vis-à-vis the dollar. The episodes highlighted not only the dangers of not having an international reserve system disconnected from national currencies, but that the US dollar and the euro with all their weakness have not yet obvious substitutes. © 2010 Springer-Verlag.