The international monetary system is now “private” and no longer “public”: This changes its functioning considerably

Until 2013, the international monetary system was “public”: it was based on the fact that the US external deficit was financed by the central banks of China and emerging and commodity-exporting countries, which accumulated foreign-exchange reserves. This “public” international monetary system was quite stable, as it was based on the monetary and exchange rate policy choices of central banks, which are seldom destabilising. Since 2014, the international monetary system has become “private”: the US external deficit is now financed by private sector capital flows, as central banks’ foreign-exchange reserves have fal len and then stabilised. Private investors can adopt destabilising arbitrage or speculative behaviours, leading to increased instability in capital flows and exchange rates.