We hear a lot of talk nowadays about the structural imbalance in global trade: namely, the West needs to spend less and export more (Germany excluded) and the East needs to export less and spend more (China especially). What we don't talk about much are the structural deficits that currently stand in the way of rising Asia's collective ascension to the role of established third pillar of global order. Instead, we place too much hope on China's unique abilities to scale that mountain on its own, while simultaneously fearing that Beijing's resulting ambitions will ultimately prove globally destabilizing.
Ever since Richard Nixon detached the dollar's value from gold and plunged the West into an era of floating exchange rates, major industrial powers have been forced, every decade or so, to collude on engineering tectonic shifts in the value of key currencies -- most notably the dollar. The famous 1985 "Plaza accord," so named for the New York City hotel where negotiations took place, initiated a depreciation of the overvalued dollar, and 10 years later a "reverse Plaza accord" did the exact opposite.
But with the euro's emergence in 1999, several prominent European currencies were combined to generate a serious competitor to the dollar's role as primary global reserve currency. Debuting at roughly 18 percent of total global reserves, the euro has expanded its share to 27 percent while the dollar has dropped from 71 percent to 64 percent. The success of this balancing role can be seen in the fact that the dollar value, in relation to the euro, fluctuated rather dramatically over the past 10 years (ranging from $0.80 to $1.60) without causing undue perturbations in the global financial system.