Mainstream economic theory suggests that finance serves four main functions for the real economy — resource allocation, price discovery, risk management and corporate governance. This universal finance theory or model sounds reasonable and applies to all places and all times, forgetting the context in which money plays a role in the real economy. Just like no country is an island, operating in the global economy, money is not an island — it operates within a geopolitical systemic context.
US President Donald Trump’s “America First” policy exposed the myth that the US dollar-denominated global money and financial system is a global public good. If the US dollar serves only the national issuers, then the rest of the world needs to think through what this truly means for global monetary and financial stability.
Mainstream finance theory suggests that money is the life blood of the real economy, helping to provide liquidity, means of payment, store of value, market price discovery and risk management, and reinforcing credit and governance discipline.
These basic functions appear as self-evident truths — logical, consistent and convincing. But the 2007 global financial…
