(p. 199) 8. The Evolution of the International Monetary and Financial System
The international monetary and financial system plays a central role in the global political economy (GPE). Since the late nineteenth century, the nature of this system has undergone several pivotal transformations in response to changing political and economic conditions at both domestic and international levels. The first was the collapse of the integrated pre-1914 international monetary and financial regime during the interwar years. The second transformation took place after the Second World War, when the Bretton Woods order was put in place. Since the early 1970s, various features of the Bretton Woods order have unravelled with the globalization of finance, the collapse of the gold exchange standard, and the breakdown of the adjustable peg exchange rate regime. These changes have important political consequences for the key issue of who gets what, when, and how in the GPE.
(p. 200) Introduction
It is often said that money makes the world go around. Indeed, international flows of money today dwarf the cross-border trade of goods in their size. If money is so influential, it is fitting that it should have a prominent place in the study of GPE.
While perspectives vary enormously, scholars working on the political economy of international monetary and financial issues share the belief that the study of money and finance must embrace a wider lens than that adopted by most economists. Economists are trained to view money and finance primarily as economic phenomena. From their standpoint, money serves as a medium of exchange, a unit of account, and a store of value, while financial activity allocates credit within the economy. These functions are critical to large-scale economic life, since they facilitate commerce, savings, and investment.
Such descriptions of the economic role of money and finance are certainly accurate, but they are also limiting. Money and finance, after all, serve many political purposes as well (not to mention social and cultural ones). In all modern societies, control over the issuance and management of money and credit has been a key source of power, and its distributional consequences have been immense. Consequently, the organization and functioning of monetary and financial systems have rarely been determined just by a narrow economic logic; rather, various political rationales relating to the pursuit of power, ideas, and interests have played a crucial role (Strange 1998b; Kirshner 2003; Drezner and McNamara 2013).
The interrelationship between politics and systems of money and finance is particularly apparent at the international level, where no single political authority exists. What money should be used to facilitate international economic transactions and how should it be managed? What should the nature of the relationship between national currencies be? How should credit be created and allocated at the international level? The answers to these questions have profoundly important implications for politics, not just within countries, but also between them. It should not surprise us, then, that they provoke domestic and international political struggles, often of an intense kind.
This chapter highlights this point by providing an overview of the evolution of the international monetary and financial system since the late nineteenth century. The first section examines how changing political circumstances, both internationally and domestically, during the interwar years undermined the stability of the globally integrated financial and monetary order of the pre-1914 era. The next section describes how a new international monetary and financial system—the Bretton Woods order—was created in 1944 for the post-war period, with a number of distinct features. The following three sections analyse the causes and consequences of challenges to that order which have emerged since the early 1970s with the globalization of finance, the collapse of the gold exchange standard, and the breakdown of the adjustable peg exchange rate regime. In Chapter 9, Louis W. Pauly addresses another feature of the contemporary international financial order: its vulnerability to crises.
The fate of a previous globally integrated financial and monetary order
Debates about contemporary economic globalization often note that this trend had an important precedent in the late nineteenth and early twentieth centuries (see McGrew, Chapter 10, and Hay, Chapter 11 in this volume). In the financial sector, cross-border flows of money increased dramatically in this period, and according to some criteria, even surpassed those in the current era in significance for national economies (James 2001). These capital flows were facilitated by the emergence of an international monetary regime that was also highly integrated, indeed, much more so than in the current period (Gallarotti 1995). By 1914, the currencies of most independent countries and colonized regions around the world were linked to the gold standard (see Box 8.1). The result was a fixed exchange rate regime with an almost global reach. Indeed, some European countries went even further, to create regional ‘monetary unions’ in which the currencies of the member countries could circulate in each other’s territory. As the scramble for colonies intensified after 1870, many imperial powers also often encouraged the circulation of their currencies in the newly acquired colonies during this period (Helleiner 2003: chs 6, 8).
In theory, the international gold standard was a self-regulating international monetary order. External imbalances would be corrected automatically by domestic wage and price adjustments, according to a process famously described by David Hume: the ‘price–specie flow mechanism’. If a country experienced a balance of payments deficit, Hume noted, gold exports should depress domestic wages and prices in such a way that the country’s international competitive position—and thus its trade position—would be improved. Hume’s model assumed that most domestic money was gold coins, but the domestic monetary systems of many countries on the gold standard during the late nineteenth and early twentieth centuries were dominated by fiduciary money in the form of bank notes and bank deposits. In this context, the monetary authority that issued notes and regulated the banking system had to simulate the automatic adjustments of the gold standard by following proper ‘rules of the game’. In the event of a trade deficit, it was expected to tighten monetary conditions by curtailing the issue of notes and raising interest rates. The latter was designed not just to induce deflationary pressures (by increasing the cost of borrowing), but also to attract short-term capital flows to help finance the payments imbalance while the underlying macroeconomic adjustment process was taking place. In practice, however, historians of the pre-1914 gold standard note that governments did not always follow these ‘rules of the game’, and the financing of, and adjustment to, payments imbalances did not always take place in the automatic manner that the theory of the gold standard anticipated (e.g. De Cecco 1974; Eichengreen 1985; Bryan 2010).
What can we learn from this era in our efforts to understand the political foundations of international money and finance? Perhaps the most interesting lesson is the fact that this globally integrated financial and monetary order did not last. In the contemporary (p. 201) period, globalization is sometimes said to be irreversible. Studying the fate of this earlier globalization trend reminds us to be more cautious. In particular, it highlights the importance of the political basis of international money and finance.
The first signs of disintegration came during the First World War, when many countries abandoned the gold standard, allowing their currencies to fluctuate in value vis-à-vis each other. After the war ended, there was a concerted effort—led by the United Kingdom (UK) and the United States (US)—to restore the pre-1914 international monetary order. Many countries did indeed re-join the gold standard during the 1920s, and international capital flows resumed on a very large scale by the late 1920s (Pauly 1997: ch. 3; Bytheway and Metzler 2016). However, the success of this effort, too, was short-lived.
In the early 1930s, a major international financial crisis triggered the collapse of both the international gold standard and international lending, contributing to what Harold James (2001) has called ‘the end of globalization’ in that era. The international monetary and financial system broke up into a series of relatively closed currency blocs. Within each bloc, international movements of capital often continued and currencies were usually fixed in value vis-à-vis each other. But between the blocs, large-scale international lending diminished and flows of capital were often regulated tightly by new government controls (‘capital controls’). The value of currencies between the blocs also fluctuated considerably for much of the decade and some governments introduced fully fledged exchange controls, which restricted private actors from converting the national currency into other currencies freely.
Hegemonic stability theory
What explains this dramatic change in the nature of the international monetary and financial regime? A prominent explanation within international political economy (IPE) scholarship attributes the transformation to a change in the distribution of power among states within the international monetary and financial arena (see, e.g., Kindleberger 1973). According to this hegemonic stability theory, the pre-1914 international financial and monetary regime remained stable as long as British hegemonic leadership sustained it. Before the First World War, the UK’s currency, sterling, was seen to be ‘as good as gold’ and it was used around the globe as an international currency. Britain was also the largest creditor to the world, and London’s financial markets held a pre-eminent place in global finance. The UK’s capital exports helped to finance global payments imbalances and they were usefully counter-cyclical; that is, foreign lending expanded when the UK entered a recession, thus compensating foreign countries for the decline in sales to the UK. During international financial crises, the Bank of England is also said to have played a leadership role in stabilizing (p. 202) markets through lender-of-last-resort operations (see Pauly, Chapter 9 in this volume).
After the First World War, however, the UK lost its ability to perform its leadership role in stabilizing the global monetary and financial order, as the US replaced it as the lead creditor to the world economy. New York also began to rival London’s position as the key international financial centre, and the US dollar emerged as an important international currency. In these new circumstances, the US might have taken on the kind of leadership role that the UK had played before the war. But it proved unwilling to do so because of isolationist sentiments and domestic political conflicts between internationally orientated and more domestically focused economic interests (Frieden 1988). Hegemonic stability theorists criticize several aspects of US behaviour during the 1920s and early 1930s. Its capital exports during the 1920s were pro-cyclical; they expanded rapidly when the US economy was booming, but then came to a sudden stop in the late 1920s, just as the growth of the US economy was slowing down. The collapse of US lending generated balance of payments crises for many foreign countries that had relied on US loans to cover their external payments deficits. The US then exacerbated these countries’ difficulties by raising tariffs against imports with the passage of the 1930 Smoot–Hawley Act. As confidence in international financial markets collapsed in the early 1930s, the US also refused to take on the role of international lender-of-last-resort, or even to cancel the war debts that were compounding the crisis.
Changing domestic political conditions
This interpretation of the evolution of the international monetary and financial system from the pre-1914 period into the interwar period is not universally accepted (see, e.g., Calleo 1976; Eichengreen 1992; Simmons 1994). A particularly important critique has been that the transformation of the international financial and monetary system was generated more by a change in the distribution of power within many states than between them. According to this perspective, the stability of the pre-1914 international monetary and financial order was dependent on a very specific domestic political context: governments were strongly committed to the classical liberal idea that domestic monetary policy should be geared to the external goal of maintaining the convertibility of the national currency into gold at a fixed rate.
This commitment stemmed not just from liberal ideology, but also from the fact that governments before 1914 were less responsive to domestic popular pressures. Deflationary policies required to maintain the fixed currency peg in the face of a trade deficit could be very painful for domestic groups, particularly the poor, whose wages were forced downwards (or who experienced unemployment if wages did not fall). These policies were politically viable only because many low-income citizens had little voice in the national political arena. In most countries, the electoral franchise remained narrow before 1914. In many countries, central banks were not even public bodies in this period, and in colonial or peripheral regions, foreign interests often controlled monetary authorities.
After the First World War, the domestic political order was transformed in many independent states. The electoral franchise widened, the power of labour grew, and support increased for more interventionist economic policies. These changes generated political pressures for monetary policy to be geared more towards domestic goals, such as addressing domestic unemployment, rather than the goal of maintaining external convertibility of the currency into gold. As governments ceased to play by the ‘rules of the game’, the ‘self-regulating’ character of the gold standard began to break down (see Box 8.1). Short-term international financial flows also became more volatile and speculative, as investors no longer had confidence in governments’ commitment to maintain fixed rates. Faced with these new domestic pressures, central banks also found it more difficult to cooperate in ways that promoted international monetary and financial stability.
• In the late nineteenth and early twentieth centuries, a highly integrated global financial and monetary order existed. By the early 1930s, it had collapsed, and was replaced by a fragmented order organized around closed economic blocs and floating exchange rates.
• Some believe the reason for the breakdown of the pre-1914 order was the absence of a state acting as a hegemonic leader to perform such roles as the provision of stable international lending, the maintenance of an open market for foreign goods, and the stabilization of financial markets during crises.
• Others argue that the pre-1914 order was brought down more by a domestic political transformation across much of the world, associated with expansion of the electoral franchise, the growing power of labour, and the new prominence of supporters of interventionist economic policies.
In the context of the international financial crisis and Great Depression of the early 1930s, many governments then chose simply to abandon the international gold standard altogether in order to escape its discipline. In countries facing external payments deficits, the depreciation of the national currency provided a quicker and less painful method for lowering the country’s wages and prices vis-à-vis those in foreign countries in order to boost exports and curtail imports. A floating exchange rate also provided governments with greater national policy autonomy to pursue expansionary monetary policies that could address pressing domestic economic needs. This policy autonomy was reinforced by capital controls that insulated countries from the influence of speculative cross-border financial movements. For this reason, it was not surprising to find such controls supported by (p. 203) John Maynard Keynes, the leading advocate of domestically oriented, activist macroeconomic management, who famously urged governments in the early 1930s to ‘let finance be primarily national’ (Keynes 1933: 758).
The Bretton Woods order
If an integrated international monetary and financial order was to be rebuilt, it would need to be compatible with the new priority placed on domestic policy autonomy. The opportunity to create such an order finally arose in the early 1940s, when US policy-makers began to plan the organization of the post-war international monetary and financial system.
At the time, it was clear that the US would emerge from the war as the dominant economic power, and US officials were determined to play a leadership role in building and sustaining a more open multilateral economic order than the one that had existed during the 1930s. They believed that the closed economic blocs and economic instability of the previous decade had contributed to the Great Depression and the Second World War. Because of the leading international economic position of many US firms, US officials also recognized that their country would benefit economically from a more open international economic order. At the same time, US policy-makers hoped to find a way to reconcile their commitment to an open multilateral world economy with the new ideas about active public management of the economy that had become influential in the wake of the Great Depression in the US and many other countries.
This objective to create what Ruggie (1982) has called an embedded liberal international economic order was shared by policy-makers in many other countries, including Keynes, who led British planning for the post-war world economy during the early 1940s. Keynes and his American counterpart, Harry Dexter White, took the lead in producing detailed blueprints for the post-war international monetary and financial order, whose content was discussed and modified in negotiation with officials from many other countries between 1942 and 1944. At a conference in Bretton Woods, New Hampshire, in July 1944, forty-four governments then endorsed a final set of agreements (Conway 2015; Rauchway 2015).
Under the Bretton Woods agreements, governments committed to peg their currency in relation to the gold content of the US dollar, which was convertible into gold at a rate of US$35 per ounce. This commitment to fixed exchange rates reflected a widespread desire to avoid the kinds of beggar-thy-neighbour competitive devaluations, speculative financial flows, and currency instability that undermined international trade and investment during the 1930s. By pegging national currencies in this way, the Bretton Woods architects were also re-establishing an international gold standard—or, to be more precise, a ‘gold exchange’ standard or ‘gold-dollar’ standard. Nevertheless, several other features of the Bretton Woods agreements made clear that this commitment did not signal a return to the same kind of gold standard that had existed during the 1920s or the pre-1914 period.
A different kind of gold standard
To begin with, although each country agreed to make their currencies freely convertible into other currencies for current account transactions (i.e. trade payments), they were given the right to control all capital movements. While the Bretton Woods architects welcomed productive international investment flows, this provision was designed to enable governments to control speculative and ‘disequilibrating’ private financial flows that could disrupt stable exchange rates and (p. 204) national economic policy autonomy. The new support for capital controls signalled a dramatic change of views towards private cross-border financial movements from the 1920s. As John Maynard Keynes put it, ‘What used to be a heresy is now endorsed as orthodox’ (quoted in Helleiner 1994: 25).
The Bretton Woods conference also established for the first time two public multilateral financial institutions to assume some aspects of international lending that had previously been left to private markets: the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD; known as the World Bank). The IMF was to provide short-term loans to help countries finance their temporary balance of payments deficits, thus providing deficit countries with greater breathing space than they had had under the pre-1930s international gold standard (see Box 8.2). The IBRD was designed to mobilize long-term loans for reconstruction and development after the war, a task that the private markets were not trusted to perform well on their own. Support for the new ‘development’ function of the IBRD was particularly strong among those delegates from non-industrialized regions whose governments made up well over half of the delegations at the conference (Helleiner 2014a).
While the World Bank can borrow from private markets to fund its activities, the IMF’s capacity to lend comes primarily from the contributions of member governments. On joining the IMF, all member governments pay a ‘quota’ to the institution that reflects attributes such as their relative size within the world economy. The amount of money they can borrow from the Fund is determined by their quota size. Quotas also play a very significant role in determining voting shares within the Fund. All countries are allocated some ‘basic votes’, but most of their voting share is determined by their quota size. Quotas are reviewed at least every five years, and the relative share of various countries has changed over time in response to these reviews. The US share of total votes, for example, has fallen from more than 30 per cent of the total in 1944 to 16.52 per cent today. The next three largest holders of votes currently are Japan (6.15 per cent), China (6.09 per cent), and Germany (5.32 per cent). The IMF is governed by its Board of Governors, which meets annually. Day-to-day decision-making, however, is delegated to the Executive Board, which meets several times a week. The Board has twenty-four members, with some executive directors representing single countries (the US, Japan, China, Germany, France, Britain, and Saudi Arabia), while others head up groups of countries or ‘constituencies’.
Finally, rather than trust the automatic self-regulating adjustments of the gold standard, the Bretton Woods architects assigned public authorities a more conscious and active role in the management of international economic imbalances. Particularly important was the fact that national governments were given the option of changing the peg value of their national currencies whenever their country was in ‘fundamental disequilibrium’ (a term whose precise meaning was left ambiguous). In other words, the exchange rate arrangements were to be an adjustable peg system, in which countries could substitute exchange rate devaluations for harsh domestic deflations when they experienced sustained payments deficits.
More generally, the IMF was to promote global monetary cooperation and encourage countries to, in the words of its charter, ‘shorten the duration and lessen the degree of disequilibrium in the international balances of payments of members’ (Article 1-vi). To discourage international economic imbalances, the IMF’s lending capacity gave it some potential influence over deficit countries. Another provision in its charter—the scarce currency clause—provided a means for official pressure to come to bear on surplus countries. Although never applied in the post-war years, the clause was interesting; if the Fund’s ability to supply a surplus country’s currency was threatened (because of excessive demand for it from other members), the IMF could declare that currency ‘scarce’ and member governments would then be permitted to impose temporary restrictions on trade with that country (Patalano 2018).
Despite the success of the 1944 conference, it quickly became clear that some of its ambitions would not easily be realized. The Bretton Woods architects had hoped that they were building an international monetary and financial order of worldwide scope. But the Soviet Union—which had participated in the Bretton Woods negotiations—refused to join the system after the conference, and Soviet allies then withdrew once the Cold War began. After the 1949 Chinese revolution, the People’s Republic of China was also outside the system as China was represented in the IMF and IBRD by the government in Taiwan.
Even among the countries that remained members of the Bretton Woods system, the IMF and IBRD played only very limited roles for the first decade and a half after the Second World War. Many countries also did not make their currencies convertible in this period, including most West European countries which did not restore current account convertibility until 1958 (the Bretton Woods agreements had allowed for a ‘transition’ period during which countries could keep currencies inconvertible). At the same time, however, most governments outside the Soviet orbit were still committed during this period to the other principles outlined at Bretton Woods: namely, support for capital controls, the gold exchange standard, and the maintenance of an adjustable peg exchange rate regime. Moreover, although the Bretton Woods institutions were sidelined, other bodies—particularly the US government, but also regional institutions such as the European Payments Union—acted in the ways that the Bretton Woods architects had hoped the IMF and IBRD would; that is, they provided public international lending for temporary balance of payments support, as well as for reconstruction and development.
• The Bretton Woods conference in 1944 created a new kind of ‘embedded liberal’ international monetary and financial order that sought to reconcile liberal multilateralism with active public management of the economy.
• Governments joining this multilateral order committed themselves to: currency convertibility for current account payments, a gold exchange standard, an adjustable peg exchange rate regime, the right to control capital movements, and support for the IMF and World Bank.
• Some of the features of the Bretton Woods order were in place between 1945 and 1958, but this order reached its heyday between 1958 and 1971.
During the heyday of the Bretton Woods order, from the late 1950s until 1971, the IMF and World Bank became more active lenders, although they had a less central role in the system than the Bretton Woods architects had hoped for. Governments also remained committed to the other key features of the order. What, then, became of the Bretton Woods order? (p. 205) In some respects, it seems to be still alive. The IMF and World Bank still exist and their membership has widened to include almost all countries in the world (including the People’s Republic of China and Russia which joined the institutions in 1980 and 1992 respectively); most countries’ currencies are convertible for current account transactions; the dollar is still the key international currency; and the broader formal commitment to multilateralism has endured. In the following sections, however, we explore the key causes and consequences of various challenges to other features of the Bretton Woods regime that have emerged as a result of the globalization of finance, the collapse of the gold exchange standard, and the breakdown of the adjustable peg exchange rate regime.
The globalization of financial markets
The globalization of private financial markets has been one of the more dramatic developments of the last few decades. Recall that the Bretton Woods architects endorsed an international financial order in which governments could control cross-border private financial flows, and public international institutions played a new role in international lending. Although the Bretton Woods architects had certainly hoped to revive productive private international investment flows, few at the time expected the world in which we now live, where enormous sums of private capital flow around the world quite freely on a twenty-four-hour basis.
Explaining financial globalization
How did we get from there to here? Technological developments have played a role, as the growth of global telecommunications networks has enabled money to be moved around the world much more easily and cheaply than in the past. The dramatic expansion of international trade and multinational corporate activity in recent decades has also generated growing demand for private international financial services. Other market developments have also encouraged financial globalization, such as growing competitive pressures within leading financial systems, and the creation of new financial products such as derivatives (see Pauly, Chapter 9 in this volume).
(p. 206) In addition to these technological and market developments, the political choices by governments have also been important in supporting the emergence of a more liberal environment for cross-border financial flows (Helleiner 1994; Abdelal 2007). The first step in this direction took place when the British government encouraged the growth of the ‘euro-market’ in London during the 1960s, where international financial activity in foreign currencies—primarily US dollars in the early years—could be conducted on a largely unregulated basis. After the early 1970s, many governments then began to fully dismantle capital controls they had employed at various times during the post-war years. The US and UK led the way, abolishing their national capital controls in 1974 and 1979, respectively. They were soon followed by other Organisation for Economic Co-operation and Development (OECD) countries. By the 1990s, an almost fully liberal pattern of financial relations had emerged among OECD countries, giving market actors a degree of freedom in cross-border financial activity unparalleled since the 1920s. Many lower income countries also began to abolish capital controls, including many small jurisdictions—such as the Grand Caymans—that offered their territories as locations for ‘offshore’ international financial activity via loose regulatory environments (Palan, Murphy, and Chavagneux 2009; Ogle 2017).
What explains states’ growing support for financial globalization? The increasing influence of more free market or ‘neo-liberal’ ideology among financial policy-makers in this period played a part in some countries. Neo-liberals argued that removal of capital controls would increase individual choice and enable markets to allocate capital internationally in a more efficient manner. Many neo-liberals were also less sympathetic to Bretton Woods’ ‘embedded liberal’ goal of protecting the policy autonomy of governments. From their standpoint, international financial markets could play a useful role imposing an external discipline on governments pursuing inflationary or fiscally unsustainable policies.
Some policy-makers have also seen the liberalization of capital controls as a kind of competitive strategy to attract mobile financial business and capital to their national territory (Cerny 1994). The British government’s support for the euromarkets and its decision to abolish capital controls in 1979 were both designed to help rebuild London’s status as a leading international financial centre in this way. The US support for financial liberalization (both at home and abroad) was also linked in part to the goal of bolstering New York’s international financial position, as well as attracting foreign capital to help finance US trade and budget deficits. The smaller, offshore financial centres also saw the hosting of an international financial centre as a development strategy that could provide employment and some limited government revenue (from licences and fees) (Ogle 2017). Once governments such as these had begun to liberalize and deregulate their financial systems, many other governments felt competitive pressure to follow suit in order to prevent mobile domestic capital and financial business from migrating abroad. As their country’s firms became increasingly transnational and had access to foreign financial markets, policy-makers also worried that national capital controls were becoming increasingly difficult to enforce in an effective manner that was not costly to the national economy (Goodman and Pauly 1993).
Alongside governments’ unilateral decisions to abolish capital controls, there have been efforts to codify a more liberal set of international rules to govern cross-border financial flows (Abdelal 2007; Moschella 2012). Some of these efforts have been successful, such as a 1988 European Union directive to liberalize capital controls among its members, and a 1989 amendment to an OECD code which committed OECD countries to liberalize all financial flows. In the mid-1990s, a more ambitious initiative was launched by IMF management to assign their institution the formal purpose of promoting financial liberalization, thereby challenging the Bretton Woods commitment under which governments had the right to control capital movements. But this effort was abandoned at the height of the 1997–8 East Asian financial crisis, which highlighted the risks of financial globalization to many policy-makers (see Pauly, Chapter 9 in this volume).
The experience of the global financial crisis of 2008 further undercut support for financial liberalization. In the wake of the crisis, many observers noted that countries that had maintained capital controls—such as China and India—were often more insulated from the severe financial turmoil in US and European markets. When US and European authorities dramatically lowered interest rates during and after the crisis, countries such as Brazil and South Korea also employed various capital account restrictions to prevent large-scale financial inflows from driving up their exchange rates and/or generating domestic financial bubbles. Increasingly powerful ‘emerging market’ countries (p. 207) have also used their new influence in settings such as the G20 (see section on the breakdown of the adjustable peg exchange system) to press the IMF to be more supportive of the use of capital controls in the wake of the crisis. After a formal review, the IMF declared in 2012 its new institutional view that ‘in certain circumstances, capital flow management measures can be useful’ (IMF 2012c: 2). The statement was hardly a ringing endorsement of capital controls of the kind expressed at Bretton Woods, but it signalled a shift in the IMF’s position on the issue from a decade earlier (Gallagher 2015; Grabel 2015). At the same time, no major Northern country has re-imposed capital controls, and global financial markets remain an enduring, central feature of the GPE in the wake of the crisis (although the financial upheaval did encourage some retreat by market actors to the greater safety of domestic markets).
Implications for national policy autonomy
What have been the implications of the post-war globalization of finance? One set of implications is addressed in Chapter 9: the vulnerability of global financial markets to financial crises. A second set of implications relates to the concerns of the Bretton Woods architects. As noted in the section on Bretton Woods, they worried that a liberal international financial order would undermine their efforts to create a stable exchange rate system and to protect national policy autonomy. We will see later how financial globalization did complicate the task of maintaining fixed exchange rates. But what about its implications for the autonomy of national governments to pursue their preferred economic policies?
This question has generated much debate in the field of IPE for some time. Some have argued that financial globalization has severely undermined national policy autonomy, since it gives investors a powerful ‘exit’ option to exercise against governments that stray too far from global investors’ preferences. Proponents of this view argue that this discipline is felt particularly strongly by governments that pursue policies disliked by wealthy asset holders, such as large budget deficits, high taxation, expansionary macroeconomic policies that risk inflation, or, more generally, policies that reflect left-of-centre political values (Gill and Law 1989; McKenzie and Lee 1991; Kurzer 1993; Cerny 1994; Sinclair 1994; Harmes 1998). Southern governments are seen to be especially vulnerable to the discipline of global financial markets because their financial systems are often very small relative to the enormous size of global financial flows and because investors are often more skittish about the security of their assets in these contexts. If asset holders (domestic and/or foreign) lose confidence, these countries can experience an enormously damaging flight of private capital. When the latter triggers external debt crises, these countries have often turned to the IMF for financial support, but this support has usually come with tough conditions, such as demands for austerity and structural reforms (see Pauly, Chapter 9 in this volume). When imposing strict conditionality of this kind, the IMF has acted in a different role from that envisioned by the Bretton Woods architects, who had hoped this international institution would play a greater role in protecting the policy autonomy of borrowing countries.
Other scholars believe that the impact of financial globalization on the policy autonomy of national governments has been overstated. They point to open macroeconomic theory, which explains that governments face trade-offs among an ‘impossible trinity’ of monetary policy autonomy, cross-border capital mobility, and stable exchange rates. Governments can achieve two of these goals, but never all three simultaneously (see Box 8.3). As they liberalized cross-border capital movements, governments could still maintain monetary policy autonomy if they were willing to allow their national currency’s exchange rate to fluctuate in value (Andrews 1994). Governments could, for example, continue to pursue autonomous expansionary monetary policies as long as they were willing to accept a depreciation of the national currency.
Economists have pointed out that national governments face an inevitable trade-off between the three policy goals of exchange rate stability, national monetary policy autonomy, and capital mobility. Only two of these goals can be realized at the same time. If, for example, a national government wants to preserve capital mobility and a fixed exchange rate, it must abandon an independent monetary policy. An independent expansionary monetary policy in an environment of capital mobility will trigger capital outflows—and downward pressure on the national currency—as domestic interest rates fall. In this context, it will be possible to maintain the fixed exchange rate only by pushing interest rates back up and thereby abandoning the initial monetary policy goal. If, however, the government chooses to maintain the expansionary policy, it will need either to introduce capital controls or to embrace currency depreciation (the latter may also reinforce domestic expansionary pressures by boosting exports and discouraging imports), thereby sacrificing one of the other goals within the ‘impossible trinity’.
Historically, during the era of the gold standard, governments embraced fixed exchange rates and capital mobility, while abandoning national monetary policy autonomy. During the early post-1945 years, national policy autonomy and fixed (although adjustable) exchange rates were prioritized, while capital mobility was deemed to be less important. Since the early 1970s, the leading powers have sacrificed a global regime of fixed exchange rates in order to prioritize capital mobility and preserve a degree of monetary policy autonomy. Many governments within this system, however, have embraced fixed rates at the regional or bilateral level by using capital controls or by abandoning national policy autonomy.
Some authors suggest that the disciplining effect of global finance on governments with high levels of government spending, high taxation, or a more general left-of-centre political orientation has also been exaggerated (see the discussion in Hay, Chapter 11 in this volume). A number of analysts have highlighted how many OECD governments have been able to use borrowing in international capital markets to finance increased government spending (e.g. Garrett 1995; Swank 2002). Mosley (2003) also found that international financial market actors were concerned primarily with national inflation rates and aggregate levels of fiscal deficits rather than governments’ overall level of spending, taxation, or political orientation (although this result was less true when (p. 208) they considered investments in Southern countries). More recent scholarship has also shown how global financial markets have not constrained governments in places as diverse as Korea and Eastern Europe from pursuing increasingly activist national financial policies after the 2008 financial crisis (Johnson and Barnes 2015; Johnson 2016; Thurbon 2016). Scholars have also noted that the policy autonomy of the US, in particular, has been boosted by the globalization of finance as private investors around the world been attracted to its uniquely deep and liquid financial markets in ways that have helped fund US current account and fiscal deficits (e.g. Strange 1986; Helleiner 1994; Schwartz 2009). Some Southern governments have also found their policy autonomy boosted by an aspect of the financial globalization trend that has received less attention from IPE scholars: flows of remittances from rich to poor countries. These flows have been growing rapidly in recent years, and they are sometimes counter-cyclical; that is, they increase when the recipient country is undergoing difficult economic times (see, e.g., Kapur and McHale 2003).
Finally, the increasing significance of ‘sovereign wealth funds’ (SWFs) in global financial markets has also challenged the thesis that these markets are undermining governments’ policy autonomy. In this context, the analytical distinction between ‘global markets’ and ‘states’ has become blurred; the governments that control the largest such funds (especially Abu Dhabi, China, Kuwait, Norway, and Singapore) have become significant market actors and their policy priorities now play a role in shaping the behaviour of those markets. For example, Norway’s SWF is mandated to invest in ways that uphold various international social and environmental conventions that Norwegian politicians have prioritized. The overseas investments of SWFs may also be used to gain economic or political leverage abroad, or to bolster the power of the state that owns them in other ways (Helleiner and Kirshner 2009b; Shemirani 2016; Cumming, Woods, Filatotchev, and Reinecke 2017).
Distributive and environmental implications of financial globalization
Scholars of IPE have also been interested in some other implications of financial globalization that attracted less attention at Bretton Woods, one of these being its distributive impact within countries. Neo-Marxist scholars have argued that financial globalization has bolstered the power of an emerging, internationally mobile capitalist class, while eroding that of labour. The emerging transnational capital class has gained ‘structural power’ through its new ability to exit—or simply to threaten to exit—domestic political settings. This power has been used to reinforce neo-liberal ideology and a kind of ‘internationalization of the state’ that serves the interests of this new class (Gill and Law 1989).
(p. 209) Frieden (1991) has also highlighted new political divisions that have emerged within the business sector. While transnational corporations (TNCs) and owners of financial assets and services have gained from financial globalization, businesses that are more nationally based often have not. In a world of heightened capital mobility, he argues, these two groups are, in fact, increasingly at loggerheads over policy choices within the ‘impossible trinity’. The former generally prefer exchange rate stability because of their involvement in international trade and finance, even if this involves a cost of abandoning monetary policy autonomy. Those in the non-tradable sector are inclined to defend monetary policy autonomy, even if this involves accepting a floating exchange rate.
Some scholars have also analysed the gendered implications of financial globalization (Singh and Zammit 2000; van Staveren 2002). To the extent that global financial integration has been associated with the retrenchment of the welfare state, the costs have often been borne more by women than men. Cutbacks to government spending in areas such as health, education, public transportation, and other social services frequently have the effect of increasing the role played in these areas by the unpaid sector of the economy, a sector traditionally dominated by women. When countries experience sovereign debt crises, other aspects of the burden of adjustment can also be strongly gendered. For example, during the 1997–8 Asian financial crisis, incomes in the informal sectors—where women were heavily represented—fell particularly sharply, and job cuts in the formal private sector often fell more heavily on women. Aslanbeigui and Summerfield (2000: 87, 91) also note how ‘across the region, migrant workers, the majority of whom were women, were expelled from host countries’ and they quote the World Bank’s observation that ‘child labour, prostitution and domestic violence’ increased during the crisis. Other analysts have also highlighted the gendered nature of the global financial markets themselves which are constructed and legitimated by gendered narratives and discourses, and made up overwhelmingly of male traders operating with a culture that is hyper-masculinized (McDowell 1997; De Goede 2000; Prügl 2012; Griffin 2013; Brassett and Rethel 2015).
• The globalization of financial markets has been driven not just by technological and market pressures, but also by the decisions of states to liberalize capital controls that had been popular in the early post-war years.
• A hotly contested subject among IPE scholars concerns the question of whether, and to what extent, global financial markets have eroded the policy autonomy of national governments.
• Financial globalization has also had important distributive consequences along class, sectoral, and gender lines, as well as environmental implications.
Another important issue concerns the environmental implications of global financial markets. Some analysts have argued that speculative and volatile international financial flows reward instant economic results and short-term thinking in ways that greatly complicate the kind of long-term planning that is required for the promotion of environmental values. For example, Schmidheiny and Zorraquin (1996: 10) have argued that ‘the globalization of investment flows is speeding the destruction of natural forests’ as investors push firms to harvest forests for short-term windfall profits. On the other hand, one powerful actor in global finance—the global insurance sector—does have a longer-term perspective that has led it to lobby for action on climate change in order to reduce the risk of future claims in this area (Haufler 1997; Paterson 2001; Thistlethwaite 2012). A number of voluntary codes have also been developed in recent years by investor groups and banks to encourage firms to disclose environmentally related material risks. These initiatives have received some official support, including from the World Bank in the case of the ‘Equator Principles’ and United Nations Environment Program through its Finance Initiative (Pattberg 2005; Wright and Rwabizambuga 2006; MacLeod and Park 2011; Thistlethwaite 2015). Some IPE scholars remain sceptical, however, of the effectiveness of these standards for addressing issues such as climate change (Harmes 2011).
The collapse of the gold exchange standard and the future of the dollar
While the globalization of financial markets took place in a gradual fashion, the Bretton Woods’ gold exchange standard broke down more suddenly when the US suspended the convertibility of the US dollar into gold in August 1971. Since other currencies had (p. 210) been tied to gold only via the US dollar, this move signalled the end of gold’s role as a standard for other currencies as well.
The collapse of the gold exchange standard had in fact been predicted as far back as 1960, when Robert Triffin (1960) had highlighted its inherent instability. In a system where the dollar was the central reserve currency, he argued that international liquidity could be expanded only when the US provided the world with more dollars by running larger external deficits. But the more it did so, the more it risked undermining confidence in the dollar’s convertibility into gold.
One potential solution to the Triffin Dilemma was to create a new international currency whose supply would not be tied to the balance of payments condition of any one country. Keynes had, in fact, proposed such a currency—which he called ‘bancor’—during the negotiations leading up to the Bretton Woods conference. In 1965, the US began to support the idea that the IMF could issue such a currency as a means of supplementing the dollar’s role as a reserve currency, and Special Drawing Rights (SDRs) were finally created for this purpose in 1969. The SDR was not a currency that individuals handled; it was used only by national monetary authorities as a reserve asset for settling inter-country payments imbalances (and subject to certain conditions). IMF members refused, however, to approve the issuance of significant quantities of SDR to enable it to play much of a role in the global monetary system after its birth.
As US external deficits grew during the 1960s, driven partly by the costs of the Vietnam War and its domestic Great Society programme (which produced rising imports), dollar holdings abroad increased. Indeed, the US was doing much more than providing the world with needed international liquidity by the late 1960s; it was actively exporting inflation by flooding the world with dollars. In some ways, the US benefitted from this situation as its external deficits were financed easily by the foreign dollar holdings. But the country was also becoming increasingly vulnerable to a confidence crisis. If all holders of dollars suddenly decided to convert the US currency into gold, the US would not be able to meet the demand. Another cost to the US was the risk that the dollar’s fixed value in gold would undermine the international competitiveness of US-based firms. If major trading partners in Europe and Japan had been willing to revalue their currencies, this problem could have been addressed. These governments resisted, however, preferring to keep their exports to the US market competitively priced.
A crisis of confidence in the dollar’s convertibility into gold was initially postponed when some key foreign allies—notably Germany and Japan—agreed not to convert their reserves into gold (sometimes as part of an explicit trade-off for US security protection: Zimmermann 2002). But other countries that were critical of US foreign policy in this period—France in particular—refused to adopt this practice, seeing it as a reinforcement of American hegemony and the ‘exorbitant privilege’ that they believed the US gained from issuing the world’s leading currency (Kirshner 1995: 192–203). When speculative pressures against the dollar reached a peak in 1971, the US chose simply to ‘close the gold window’ in order to free itself from the constraint on its policies that gold convertibility imposed (Gowa 1983).
The dollar’s enduring global role
In the eyes of some observers, the breakdown of the gold exchange standard reflected declining US power, thus providing further evidence to support the hegemonic stability theory. Others, however, suggested US hegemonic power in the international monetary system remained; all that had changed was the country’s willingness to lead (e.g. Calleo 1976; Strange 1986). Defenders of the latter position pointed to the fact that the US dollar remained the unchallenged dominant world currency after 1971.
When US policy-makers ended the dollar’s convertibility into gold, some predicted that the US currency’s role as the dominant world currency would be challenged quickly, since the dollar was no longer ‘as good as gold’. In fact, however, the dollar’s central global role has endured up to the present day. It has continued to be the currency of choice for settling international economic transactions and for denominating international trade and investments across much of the world. Among countries that peg their currencies, the dollar is also the most popular anchor currency. In addition, the greenback has remained the most common currency in which most governments hold their foreign exchange reserves.
The US dollar’s enduring central global position is partly a product of inertia and the enormous size and significance of the US economy in the world. There are many ‘network externalities’ that reinforce the continued use of existing currencies, particularly (p. 211) when the issuing country is such a major player in the global economy; the more a currency is used, the greater the incentive for others to use it for convenience reasons. Some foreign governments have also continued to hold their reserves in US dollars and to denominate their international trade in dollars because of economic and political ties with the US. Also important in explaining the dollar’s enduring global role has been the fact that US financial markets have remained the most liquid in the world because of their depth, breadth, resilience, and openness to foreigners (Hardie and Maxfield 2016). This attribute has made the holding and use of US dollars very attractive to private actors and foreign governments. Although some predicted that the yen and Deutschmark might challenge the dollar after 1971, neither Japan nor West Germany were willing and/or able to cultivate the kinds of domestic financial markets in which yen-denominated or Deutschmark-denominated assets could be held to rival their dollar-based counterparts (Helleiner and Kirshner 2009a; Chey 2012).
Emerging challenges to the dollar’s dominant position?
Will the dollar’s global role continue? With the creation of the euro in 1999, many analysts believed that the dollar was facing its most serious post-war challenger: a currency managed by a conservative central bank dedicated to price stability and backed by a powerful and large economic zone (see various chapters in Helleiner and Kirshner 2009a). To date, however, the euro has failed to undermine the dollar’s global role. The fragmented nature of European financial markets and the absence of a common fiscal authority in Europe have ensured that no equivalent existed in the eurozone to the uniquely liquid and deep US Treasury bill market. Foreign confidence in the euro has also been held back by its governance challenges and the broader political credibility of the whole initiative. The eurozone financial crisis that began in 2010 revealed these weak political foundations of the euro very starkly. Because the architects of the euro had failed to specify clear procedures for the prevention and resolution of eurozone financial crises, European financial institutions facing distress were forced to turn to national governments for support, leading to questions about whether European financial integration and eurozone unity would unravel. These fears were only reinforced with the outbreak of the debt crises in the periphery of the eurozone which demonstrated further weaknesses in the political design of the euro (see next section). In response to these crises, a number of reforms have been undertaken since 2010 to strengthen the governance of the eurozone, but they are unlikely to enable the euro to challenge the dollar’s international role any time soon.
As China’s significance in the world economy has grown, analysts have increasingly speculated about whether its currency, the renminbi (RMB), might begin to challenge the dollar’s international dominance. This speculation has been encouraged by the sudden interest shown by the Chinese government in internationalizing the RMB in response to the 2008 global financial crisis (Helleiner and Kirshner 2014; Cohen 2018). The crisis highlighted to the Chinese leadership the vulnerabilities associated with its dependence on the dollar, particularly those stemming from the fact that the vast bulk of its foreign assets are held in US dollar denominated assets. Most powerful creditor countries in the past have lent abroad in their own currency in order to avoid exposure to the kinds of exchange rate risks which China now faces. While this vulnerability has left Chinese officials with strong incentives in the short term to defend the dollar in order to protect the value of its existing assets, it has also encouraged them to explore ways of reducing their dependence on the dollar over the medium term (Kirshner 2014; McNally and Gruin 2017). Promoting the RMB’s international use will also reduce exchange rate risks and transaction costs for Chinese firms involved in international commerce.
Since the crisis, Chinese authorities have engaged in a flurry of initiatives to promote the internationalization of the RMB. These have ranged from the removal of many of the controls that were previously imposed on its international use, to the signing of bilateral currency swap agreements with many foreign monetary authorities that can help to encourage the growth of RMB use abroad (Liao and McDowell 2015). RMB-denominated crude oil futures contracts at the Shanghai International Energy Exchange (IME) have even been launched in 2018, underpinned by full convertibility to gold via the prior launch of a RMB-denominated gold futures market in Hong Kong in 2017 (Matthews and Selden 2018).
How quickly could the RMB become a leading international currency? Because of the growing size of China’s economy, some predict that the RMB is destined to take over from the dollar as the leading reserve (p. 212) currency as soon as the early 2020s (Subramanian 2011). But even those ambitious predictions are conditional on the Chinese government launching far-reaching financial reforms. As Eichengreen (2011: 7) puts it, if the euro is challenged by being a ‘currency without a state’, the RMB faces the opposite situation of being a ‘currency with too much state’. The attractiveness of China’s currency to foreigners has been undermined by concerns about its full convertibility as well as the absence of well-developed, liquid, and open RMB financial markets that are backed by a stable legal infrastructure and property rights. Like the US in the late nineteenth century, China’s ability to emerge as an international monetary leader still lags very far behind its new-found industrial power (De Cecco 2009). While some groups within China favour the kinds of reforms that are necessary for RMB internationalization, those reforms also threaten to undermine the regulated financial system that has been core to the Chinese export-oriented state-led development model. They thus have powerful opponents in the Chinese political economy (Helleiner and Kirshner 2014; Li 2018). The internationalization of the RMB may also be held back by potential macroeconomic instability in China, originating chiefly in the transition from export-led growth to a model of growth centred more on domestic consumption (Lardy 2015).
In addition to promoting RMB internationalization, Chinese officials supported the strengthening of the SDR’s role in the international monetary system. In March 2009, Chinese central bank governor Zhou (2009) released a prominent paper that, citing Keynes and Triffin, argued that the SDR should assume a larger role in the international monetary system to pave the way for the longer-term goal of creating a system centred on a ‘super-sovereign reserve currency’. Zhou outlined various ideas to promote the SDR’s use (e.g. the issuing of SDR-denominated bonds, the creation of a fund at the IMF where governments could swap their existing reserve currencies for SDRs), and urged that the SDR’s value be determined by a wider basket of currencies than the four at the time: the US dollar (which was weighted at the time at 44 per cent of the currency basket), the euro (34 per cent), the yen (11 per cent), and sterling (11 per cent).
Although they rejected Zhou’s more ambitious ideas, US officials recognized the usefulness of the SDR for addressing an immediate short-term problem during the global financial crisis at the time: the need to bolster the IMF’s resources to help buffer countries from balance of payments shocks. With this goal in mind, the IMF membership as a whole backed in 2009 the first new SDR allocation since the early 1980s and also the largest at approximately SDR150 billion (US$250 billion). In November 2015, the IMF also approved the inclusion of the RMB in the basket of currencies that makes up the SDR’s value, assigning it a weighting of 11 per cent, above that of the yen (8 per cent) and sterling (8 per cent), but below the euro (31 per cent) and the US dollar (42 per cent). Nonetheless, the SDR’s role remains a relatively minor one in the international monetary system: the new allocation raised the share of SDRs in the world’s non-gold official reserves from less than 0.5 per cent to still only about 5 per cent (Williamson 2009). In the absence of more serious reforms, the SDR’s role is likely to remain that of simply supplementing existing international reserve currencies for some time to come (Ly 2012; Helleiner 2014b).
If external challenges to the dollar’s dominant global role face many political constraints, US behaviour itself could play a role in encouraging a downsizing of the greenback’s international position. Domestic US economic mismanagement could undermine confidence in the currency. The dollar’s global role could also be affected if the US turned inward economically, prioritizing domestic manufacturing and exports (Angrick 2018). Some foreigners may also become more wary of dollar dependence if US policy-makers rely too heavily on their currency as an instrument of diplomacy. For example, US policy-makers are aware that one of their more effective tools for sanctioning foreigners involves restricting the latter’s access to dollar clearing and payments systems (Emmenegger 2015). The more that the US officials employ this tool, the more foreigners may try to cultivate alternative monetary instruments to minimize their vulnerability.
US policy-makers might also consider deliberately trying to scale back the dollar’s international position to shed itself of some costs associated with that role (Helleiner 2017; Cohen 2018). For example, in the wake of the 2008 crisis, some prominent US analysts urged US policy-makers to downsize the dollar’s global role because it had enabled their country to live recklessly beyond its means and had encouraged a pattern of US growth characterized by large current account deficits, foreign capital inflows, and accumulating foreign debt (Bergsten 2009). The issuing of a dominant world currency also comes with some other costs for the US, such as the loss of some macroeconomic control, the burden of responsibility to maintain the stability of the (p. 213) international monetary system as a whole, and vulnerability to the selling of external dollar holdings. Because the issuing of an international currency carries many such costs, some analysts have described it as more of an ‘exorbitant burden’ than a privilege (Pettis 2011).
At the same time, the privileges should not be underplayed. US authorities have been able to use the dependence of market actors on dollar-clearing and payments networks, not just to enforce sanctions, but also to encourage worldwide cooperation with US regulatory initiatives (e.g. with respect to tax or anti-money laundering regulations). As the sole producer of the world’s key currency, the US also plays a decisive role during international financial crises because of its unique ability to make advances of dollars to foreign governments or private institutions in distress (see Pauly, Chapter 9 in this volume). If the dollar’s dominant global role were to diminish in the future, the US would also lose seigniorage revenue for the US government (see Box 8.4), as well as the international prestige that comes from issuing a dominant world currency. To the extent that the dollar’s global role generates higher foreign demand for its services (e.g. trade finance, foreign exchange business, the buying and selling of securities), the US financial sector also earns some ‘denomination rents’. In addition, the dollar’s global role has bolstered the US capacity to finance current account deficits, as well as to deflect the costs of adjustments onto foreigners by depreciating its currency. During international political and economic crises, the US may also have benefited from a ‘flight to quality’ by investors in ways that boosted its macroeconomic room to manoeuvre. More generally, foreign dependence on an international currency may benefit the issuer by encouraging foreigners to identify their interests more closely with those of the issuing country (Kirshner 1995; Andrews 2006).
Seigniorage is usually defined as the difference between the nominal value of money and its cost of production. This difference is a kind of ‘profit’ for the issuer of money. In the pre-modern era, this source of revenue was often very important for ruling authorities. National monetary authorities earn seigniorage not just from the use of the money they issue by citizens within their borders; the international use of their currency will augment the seigniorage revenue they earn even further. When foreigners hold US dollar bills, they provide the equivalent of an interest-free loan to the US. According to some estimates, the value of this perk for the US is approximately US$15–20 billion per year (Cohen 2015: 21).
• In 1971, the US ended the gold convertibility of its currency, and, by extension, that of all other currencies. The US decision reflected its desire to free itself from the growing constraint on its policies that gold convertibility was imposing.
• The US dollar continued to be the dominant global currency after it ceased to be convertible into gold in 1971 for a variety of economic and political reasons.
• The US dollar’s global role may face new challenges over time, and the erosion of this role would have important implications for the US and international monetary system as a whole.
The erosion of the dollar’s central global position would have consequences not just for the US, but also for the world as a whole. Drawing on the interwar experience, supporters of the hegemonic stability theory might predict that the shift to a more multipolar currency order will generate a more unstable global monetary system. The opposite may also be true, however. David Calleo (1987: ch. 8;) argues that a world monetary order based on more ‘pluralistic’ or ‘balance of power’ principles may be more likely to produce stability over time than one based on hegemony. A hegemonic power, in his view, is inevitably tempted to exploit its dominant position over time to serve its own interests rather than the interests of the stability of the system. Then European Commission president, Jacques Delors, advanced a similar argument in defending the euro project in 1993; in his words, the creation of the euro would make the EU ‘strong enough to force the US and Japan to play by rules which would ensure much greater monetary stability around the world’ (quoted in Henning 1998: 565). More recently, Chinese officials have also highlighted benefits that they believe would flow from a more multipolar currency order (Chin 2014; Otero-Iglesias 2014). Even if we accept that a more pluralistic international monetary order may be more stable, the transition away from a dollar-centred order is likely to contain risks for the world economy and usher in broader geopolitical shifts (Kirshner 2014). (p. 214)
The breakdown of the adjustable peg exchange rate regime
Alongside the gold exchange standard, another feature of the Bretton Woods monetary order that broke down in the early 1970s was the adjustable peg system. This development took place in 1973, when governments allowed the world’s major currencies to float in value vis-à-vis one other. In 1978, a new international exchange rate regime was formalized when a second amendment of the IMF’s Articles of Agreement came into force, which legalized floating exchange rates by declaring that each country could now choose its own exchange rate regime.
The end of the adjustable peg system was partly triggered by the growing size of speculative international financial flows that complicated governments’ efforts to defend their currency pegs. Also important was the fact that influential policy-makers began to re-evaluate the merits of floating exchange rates (Odell 1982). They held that floating exchange rates had unfairly acquired a bad reputation during the 1930s. From this perspective, there was no necessary reason why floating exchange rates should be associated with competitive devaluations, destabilizing speculative financial flows, and a retreat from international economic integration, as they had been in the 1930s. Supporters of floating exchange rates also argued that they could play a very useful role in facilitating smooth adjustments to external imbalances in a world where governments were unwilling to accept the discipline of the gold standard. The idea of using exchange rate changes for this purpose had, of course, been endorsed at Bretton Woods; governments could adjust their currency’s peg when the country was in ‘fundamental disequilibrium’. But, in practice, governments had been reluctant to make these changes because exchange rate adjustments often generated political controversy, both at home and abroad. Adjustments usually came only when large-scale speculative financial movements left governments with no option. The result had been a rather rigid and crisis-prone exchange rate system, in which countries often resorted to international economic controls to address imbalances instead. A floating exchange rate system, it was hoped, would allow external imbalances to be addressed more smoothly and continuously, without so much resort to controls.
Have floating exchange rates performed in the ways that its advocates had hoped? Their proponents were certainly correct that floating exchange rates between the major economic powers have not inhibited the growth of international trade and investment, both of which have expanded rapidly since the early 1970s. Floating exchange rates have undoubtedly often also played a useful role in facilitating adjustments to international economic imbalances. But as foreign exchange trading has grown dramatically, critics have argued that exchange rates have sometimes been subject to considerable short-term volatility and longer-term misalignments. In these circumstances, floating exchange rates have sometimes been a source of, rather than the means of adjusting to, external economic imbalances. To curb the adverse effects of speculative foreign exchange trading, or what he later called ‘inter-currency mobility of private financial capital’, James Tobin (2003: 519) had proposed in a lecture in 1972 that a currency transaction tax be levied against all cross-currency transactions. His proposal has gained many supporters, but the task of building sufficient political backing to implement effective ‘Tobin taxes’ has proven difficult, not least because of resistance from the financial industry (Kalaitzake 2017).
One of the more dramatic episodes of a longer-term exchange rate misalignment involved the appreciation of the US dollar in the early-to-mid-1980s. Speculative financial flows, attracted by the US’s high interest rates and rapid economic expansion after 1982, exacerbated the US current account deficit at the time, and generated widespread protectionist sentiments within the US by 1984–5. This episode led the US and other major industrial countries to briefly consider a move back towards more managed exchange rates between the key economic powers. In September 1985, the G5 (the US, the UK, the Federal Republic of Germany, France, and Japan) signed the Plaza Agreement which committed these countries to work together to encourage the US dollar to depreciate against the currencies of its major trading partners. After the dollar had fallen almost 50 per cent vis-à-vis the yen and Deutschmark by February 1987, they then announced the Louvre Accord, which established target ranges for the major currencies to be reached through closer macroeconomic policy coordination (Henning 1987; Funabashi 1988; Webb 1995). This enthusiasm for a more managed exchange rate system between the world’s major currencies proved, however, to be short-lived. The three leading economic powers at the time—the US, West Germany, and Japan—were not prepared to (p. 215) accept the kinds of serious constraints on their macroeconomic policy autonomy that were required to make such a system effective.
Exchange rate manipulation and currency wars?
Another criticism of the new post-1978 international exchange rate regime has been that it has enabled governments to deliberately undervalue their national currencies for competitive advantage in ways that have exacerbated global economic imbalances. Some East Asian countries have been most prominently criticized for engaging in this practice during the 2000s. Critics have cited their rapid accumulation of foreign exchange reserves after the turn of the millennium as evidence that these countries were intervening in foreign exchange markets for this ‘mercantilist’ purpose by purchasing foreign exchange (usually dollars) in order to keep the value of their currency low (for discussions, see Hamilton-Hart 2014; Steinberg 2015; see also see Pauly, Chapter 9 in this volume). China’s reserves grew in a particularly dramatic fashion, reaching a peak of close to US$4 trillion by 2014 (of which a majority were estimated to be held in US dollar-denominated assets).
Some analysts argue that this East Asian accumulation of dollar reserves recreated the situation that existed in the 1960s, when Europe and Japan built up dollar holdings as a result of their efforts to keep their exchange rates competitive vis-à-vis the US. Describing this arrangement as a ‘Bretton Woods II’ system, these analysts point to benefits it generated for participants: while East Asian countries supported their export-oriented industrialization strategies, the US gained cheap imports and low cost foreign funding in the form of foreign dollar holdings of its large trade and fiscal deficits (Dooley, Folkerts-Landau, and Garber 2003). But this arrangement has also generated political opposition. In China, the costs of holding such large dollar reserves have become increasingly politicized, with domestic critics questioning the country’s dependence on the US, and asking why more of their country’s savings were not being invested at home. In the US, growing protectionist pressures have called into question that country’s willingness to continue to provide an open market to imports from China and other low cost East Asian exporters.
In the context of growing domestic protectionist sentiments, US policy-makers have shown new interest in measures—including trade restrictions—that could penalize countries that are deliberately manipulating their exchange rates to gain an unfair advantage in international trade. The US position has been partly motivated by a sense that the IMF has not been acting as an effective ‘umpire’ of exchange rate issues in the international monetary system. Under the 1978 IMF rules, countries were allowed to adopt an exchange rate regime of their choosing, but they also committed to ‘avoid manipulating exchange rates or the international monetary system in order to prevent effective balance of payments adjustment or to gain an unfair competitive advantage over other members’. The 1978 rules also assigned the IMF a new mandate to ‘exercise firm surveillance over the exchange rate policies of members’ (Article IV, sections 1 and 3). The IMF’s ‘surveillance’ activities quickly became an important part of its overall operations, focusing initially on bilateral consultations with individual members, but also on multilateral surveillance in more recent years (Pauly 1997; see also Pauly, Chapter 9 in this volume). As Chinese foreign exchange reserves grew dramatically, US policy-makers argued that the IMF had not been sufficiently critical of the country’s exchange rate practices (Blustein 2013). If the IMF would not act, some US policy-makers have pressed for unilateral action against countries perceived to be manipulating their currencies for competitive advantage.
The US itself has also been criticized by other countries for its monetary policy response to the 2008 financial crisis. That response relied disproportionately on monetary policy accommodation, including unconventional monetary policies involving the setting of interest rates below, at, or near zero for a long period of time, and the expansion of its central bank’s balance sheet (El Erian 2016; Siklos 2017). The initial stages of the US Federal Reserve’s quantitative easing in 2010 and 2011 raised concerns about adverse effects on emerging economies, as excess liquidity threatened to push up the value of their currencies and generate financial instability in their economies (Zhu 2012). A series of monetary interventions around the same time by central banks in Europe, Japan, South Korea, and Taiwan, as well as China’s suppression of the value of the RMB prompted then-finance minister of Brazil to complain: ‘We’re in the midst of an international currency war, a general weakening of currency’ (Wheatley and Garnham 2010).
Against this backdrop, the G20 leaders’ forum became another international setting in which issues (p. 216) relating to exchange rates and macroeconomic coordination were discussed. The forum was created at the height of the financial crisis in November 2008 and included leaders from all the world’s major economies (the G20 had already met regularly at the level of finance ministers and central bankers since 1999). During their first two summits, the G20 leaders focused primarily on international regulatory issues designed to minimize future crises (see Pauly, Chapter 9 in this volume). But at their third summit in September 2009, they widened the agenda, announcing that the G20 was now ‘the premier forum for our international economic cooperation’ and committing to a ‘Framework for Strong, Sustainable and Balanced Growth’. This Framework included a new ‘consultative mutual assessment process’ to evaluate whether national economic policies remained consistent with shared goals outlined by the G20 as a whole (Rommerskirchen and Snaith 2017). The IMF (along with the World Bank) was assigned a role of supporting this process through analyses that built on its existing bilateral and multilateral surveillance activities. Some hoped that the new G20 mutual assessment process would reinvigorate the kind of multilateral exchange rate management and macroeconomic coordination that characterized the Plaza to Louvre period. But the fundamental political challenge identified at Bretton Woods of reconciling countries’ desire for national policy autonomy with their commitment to open multilateral world economy remains (Knaack and Katada 2013). And it is now being met in a context which is less ‘hegemonic’ than the early post-war years, raising new political challenges.
The creation of the euro
Although international efforts to coordinate the relationship between the values of the world’s major currencies have been limited since the early 1970s, some governments have moved to create stable monetary relations in smaller bilateral and regional contexts. The most politically charged and elaborate initiative has taken place in Europe. At the time of the breakdown of the Bretton Woods exchange rate system, a number of European countries attempted to stabilize exchange rates among themselves, efforts that soon led to the creation of the European Monetary System (EMS) in 1979. The EMS established a kind of ‘mini-Bretton Woods’ adjustable peg regime in which capital controls were still widely used, and financial support was provided to protect each country’s currency peg vis-à-vis other European currencies (Mourlon-Druol 2012). Then, with the Maastricht Treaty in 1991, most members of the European Union went one step further to commit to a full monetary union in 1999.
The long-standing resistance of many European governments to intra-European floating exchange rates stemmed partly from worries that exchange rate volatility and misalignments would disrupt their efforts to build a closer economic community. Exchange rate instability was deemed to be disruptive to private commerce as well as to the complicated system of regional public payments within Europe’s important Common Agricultural Policy (Eichengreen and Frieden 2018). But why go so far as to abandon national currencies altogether in 1999?
One answer is that the adjustable peg system of the EMS became unsustainable after European governments committed themselves to abolishing capital controls in 1988. The latter decision left European currency pegs vulnerable to increasingly powerful speculative financial flows, a fact demonstrated vividly in the 1992–3 European currency crisis. By committing to a monetary union, they eliminated the possibility of future intra-regional exchange rate crises altogether.
Some policy-makers outside of Germany also saw the currency union as a way to import the German central bank’s anti-inflationary monetary policy. Like the German Bundesbank, the new European central bank was given a strict mandate to pursue price stability as its primary goal. For neo-liberal policy-makers, whose influence had been growing across Europe, this mandate promised an end to activist national monetary policies which were often associated with inflation (McNamara 1998). Some neo-liberals also hoped that the euro, by eliminating the possibility of national devaluations, might encourage greater price and wage flexibility within national economies, as workers and firms were forced to confront the impact of external economic ‘shocks’ in a more direct fashion.
Interestingly, for a related reason, some European social democrats and unions saw the euro as an opportunity to reinvigorate national corporatist social pacts in which cooperative wage bargaining, employment friendly taxation schemes, and other social protection measures could assume a key role in the process of adjusting to external economic shocks. Because the euro could protect a country from speculative currency attacks, some of these same groups also saw monetary union as creating a more stable macroeconomic environment in which progressive supply-side (p. 217) reforms could be undertaken to promote equity, growth, and employment. In some countries, adopting the euro was also seen as a way to lower domestic interest rates by reducing risk premiums that the markets were imposing, a result that improved governments’ budgetary positions and prevented cuts to the welfare state. Some on the left also hoped that the euro project might eventually help to dilute the monetary influence of the neo-liberal Bundesbank across Europe, and encourage coordinated EU-wide expansionary fiscal policies (Josselin 2001; Notermans 2001).
The monetary union project also had a broader political meaning. In addition to challenging the US dollar’s international role, the creation of the euro has been seen as an important symbol of the process of fostering ever-closer European cooperation. In addition, many analysts argue that the decision to create the euro was linked to a broader political deal between Germany and other European countries at the time of the Maastricht Treaty. Many European countries—especially France—had become increasingly frustrated by the domination of the EMS by the German Bundesbank, and they pressed for European and Monetary Union (EMU) as a way to dilute its influence. Germany is said to have accepted EMU when it came to be seen as a trade-off for European (and especially French) support for German reunification in 1989 (see, e.g., Kaltenthaler 1998).
Crisis of the euro
The global financial crisis of 2008 exposed weaknesses in the euro’s design. We have already noted the absence of clear rules for resolving financial crises in the eurozone. In addition, it was clear from the start that the eurozone was not what economists call an ‘optimum currency area’, and that its architecture did not make adequate provisions for adjustments to intra-zone payments imbalances (see Box 8.5). During the first decade of the euro’s existence, Germany accumulated large surpluses, while payments deficits emerged in a number of poorer eurozone countries in response to differing rates of productivity growth, asymmetric shocks, and other diverging economic trends. Within large national currency zones such as the US or Canada, imbalances of this kind between regions of the country are paved over by mechanisms such as labour migration and large fiscal transfers from the national government. In the eurozone, however, large labour migration was unlikely and no Europe-wide authority exists with a mandate to mobilize large-scale fiscal transfers of this kind (Cohen 2012).
The theory of optimum currency areas was first developed by the Nobel Prize winning economist, Robert Mundell (1961), to evaluate the pros and cons of forming a monetary union among a selected group of countries. While assuming the union will produce microeconomic benefits in the form of lower transaction costs for cross-border commerce, the theory focuses its analytical attention on the potential macroeconomic costs associated with abandoning the exchange rate as a tool of macroeconomic adjustment. If these costs are low, the region is said to approximate more closely an ‘optimum currency area’ that should be encouraged to create a monetary union.
To evaluate how significant these costs are in each regional context, the theory examines a number of criteria. If selected countries experience similar external shocks, for example, the theory notes that they are more likely to be good candidates for monetary union, since they will each have less of a need for an independent exchange rate. Even if they experience asymmetric shocks, the macroeconomic costs of abandoning national exchange rates may still be low if wages and prices are very flexible within each country, if labour is highly mobile between countries, or if there are mechanisms for transferring fiscal payments among the countries. Each of these conditions would enable adjustments to be made to external shocks in the absence of an exchange rate.
A monetary union could still function effectively if countries adjusted to imbalances through wage and price flexibility, as under the gold standard. As noted already, many designers of the euro had in fact hoped it would encourage such flexibility with deficit countries being forced to adjust through lower wage and prices. But those kinds of adjustments are slow, painful, and politically difficult in an era of mass democracy (Johnson 2016). Many deficit countries found it easier simply to finance payments deficits through private and public borrowing from investors outside their country. Indeed, the euro’s creation was accompanied by large capital flows (p. 218) from surplus to deficit countries that often financed domestic consumption booms, property bubbles, and/or government deficit spending that only contributed to the country’s payments problems as well as to high levels of private and/or public debt (De Grauwe and Ji 2015).
The 2008 global financial crisis brought this external borrowing to a halt, exposing the underlying payments imbalances as well as unsustainable levels of private and/or public debts in a number of countries. The severe economic downturn only contributed further to the difficulties of servicing debts, particularly for governments which saw tax revenues collapse and spending increase (including for bank bailouts). Greece was the first eurozone country to experience a severe debt crisis, but others (e.g. Ireland, Portugal, Spain, Italy) soon experienced troubles too, as private investors reacted to the new context as well as to the slow and bumbling European management of the crisis (Copelovitch et al. 2016).
In this context, the eurozone has faced a set of major challenges. One has been to solve the immediate sovereign debt crises of a number of its poorer members and the associated problems among European banks. The strategy chosen has relied heavily on austerity programmes and liberalizing structural reforms, an approach reminiscent of the era of the gold standard and one with major distributional consequences both within and between eurozone countries (Blyth 2013; Blyth and Matthijs 2015; Matthijs and McNamara 2015). At the same time, if the euro is to flourish, its member countries must also address the flaws in its governance that have been revealed, including the need for region-wide financial regulation and supervision, clearer provisions for the extension of emergency liquidity, and closer fiscal cooperation (including not just larger fiscal transfers, but also the issuing of common eurozone debt). In the words of McNamara (2015), what is needed is a more ‘embedded currency area’. Some initiatives have already emerged from the crisis experience that point in these directions, but they require more pooling of sovereignty, which generates political resistance of various kinds across the continent (Cohen 2012). The outcomes of these political battles will shape not just the future of Europe, but also the evolution of the international monetary system as a whole, because a more politically consolidated eurozone would accelerate the move towards a more multipolar currency order.
Currency unions elsewhere?
The trajectory of the eurozone may also influence discussions about regional monetary cooperation elsewhere. The euro’s creation in 1999 triggered considerable policy and scholarly debate about the prospects of closer monetary cooperation in other regions. Some monetary unions already exist in other regions such as the CFA (Communauté Financière Africaine) franc zone involving many former French colonies in West and Central Africa. Its members chose at independence to maintain a colonial monetary union created by France and its evolution has continued to be shaped by the power and political interests of France in the post-colonial context (Stasavage 2003).
At the time of the euro’s creation, there was a brief debate about constructing a monetary union either in North America or the Americas as a whole based on the US dollar. Two countries that were already extensively dollarized—Ecuador and El Salvador—introduced the US dollar as their national currency, in 2000 and 2001, respectively, but the idea of formal dollarization attracted little serious political support elsewhere. Most governments were very wary of abandoning the exchange rate tool of adjustment in the absence of any alternative adjustment mechanisms such as free labour movement to and from the US, or arrangements for inter-country fiscal transfers. The high costs of relying on wage and price flexibility alone to maintain a currency peg to the US dollar were also demonstrated very vividly by Argentina’s deflation of the late 1990s that contributed to its spectacular financial crisis of 2001 (see Pauly, Chapter 9 in this volume). In addition, US policy-makers made it clear that the US Federal Reserve would not offer dollarized countries any role in its decision-making, extend lender-of-last-resort support to their banks, or even share seigniorage revenue with them. While European countries have shared sovereignty in creating the euro, countries in the Americas had only the unattractive option of becoming a monetary dependency (Helleiner 2006).
There has also been some talk of monetary unions in the East Asian region in recent years. This discussion builds on initiatives to foster closer monetary and financial cooperation in the wake of the 1997–8 East Asian financial crisis. That crisis exposed the vulnerability of the region to outside market and political pressures, encouraging policy-makers from China, (p. 219) Japan, South Korea, and the Association of South East Asian Nations (ASEAN) countries to explore ways to boost their collective monetary and financial independence. The first major cooperative venture of this ‘ASEAN + 3’ grouping was the Chiang Mai Initiative, created in 2000 to provide short-term financial assistance to member countries suffering from balance of payments crises. This initial bilateral swap network was soon transformed under the Chiang Mai Initiative Multilateralization initiative into US$120 billion multilateral fund that opened in 2010 (and whose size was doubled to US$240 billion in 2012), accompanied in 2011 by a new region-wide economic surveillance mechanism. Alongside these initiatives, ASEAN + 3 countries backed the creation in 2006 of an Asian Currency Unit (ACU), whose value is made up of a weighted average of a basket of the region’s currencies. Modelled on the European Currency Unit (ECU) that was a precursor to the euro, supporters hope the ACU could reduce the influence of the dollar and bolster monetary cooperation by acting as a unit of account for public and private actors in the region. The prospect of a fully-fledged East Asian monetary union any time soon, however, is considered remote by most observers. In addition to the usual concerns about monetary sovereignty, this initiative—like all the others—would be complicated by a difficult relationship between Japan and China, each of which appears to have leadership aspirations in this area (Grimes 2015; Katada 2017).
• The adjustable peg exchange rate regime of Bretton Woods broke down in 1973 and was replaced by new IMF rules in 1978 which allow countries to choose their own exchange rate regime, subject to IMF surveillance and to the provision that exchange rate cannot be manipulated to gain unfair competitive advantage.
• In response to concerns about exchange rate misalignments and manipulation, there have been occasional intergovernmental initiatives since the 1980s to manage the relationship between the values of the world’s major currencies through macroeconomic coordination.
• Since the 1970s, initiatives to create more stable monetary relations at the regional level have gained support, most notably in Europe, where cooperation culminated in the creation of a monetary union in 1999. Political prospects for regional monetary unions in other regions such as the Americas or East Asia are remote, but other kinds of more decentralized multilateral financial cooperation are growing.
Even in the absence of regional monetary union, deepening East Asian financial cooperation in the form of the Chiang Mai Initiative Multilateralization (CMIM) is ushering in a growing decentralization of the balance of payments lending role that the IMF was assigned at Bretton Woods. The trend should not be overstated: the CMIM has been explicitly designed to work with the IMF by a rule that the majority of the funds can be access only if a country has an IMF programme in place (Grimes 2015). Other multilateral funds with partial links to the IMF have also been created elsewhere, such as the US$100 billion Contingent Reserve Arrangement created by the BRICS (Brazil, Russia, India, China, and South Africa) in 2014. This decentralization trend is being intensified by changes in the field of development lending, where the creation of new institutions such as the BRICS’ New Development Bank and the Chinese-led Asian Infrastructure Investment Bank in 2014‒15 are complementing the World Bank’s role. This trend is both responding to and reinforcing the broader decentralization of power in the global economy, as well as discontent with lack of reform of the Bretton Woods institutions among emerging powers and their increasingly ambitious financial statecraft (Grabel 2017; Roberts, Armijo, and Katada 2018; Wang 2019).
The international monetary and financial system has undergone three important transformations since the late nineteenth century, in response to changing economic and political conditions. During the interwar years, the global integrated monetary and financial order of the pre-1914 period broke down. At the Bretton Woods conference of 1944, a new order was built on ‘embedded liberal’ principles. Since the early 1970s, the third change has been underway, as a number of the features of the Bretton Woods system have unravelled with the globalization of finance, the collapse of the gold exchange standard, and the breakdown of the adjustable peg exchange rate regime.
The emerging international monetary and financial system cannot be characterized in simple terms. The highly globalized nature of financial markets is (p. 220) reminiscent of the pre-1914 era, as are some of the neoliberal ideas that have become more prominent in policy-making circles. The floating exchange rate regime between the major powers, new challenges to the dominant currency’s international role, and decentralization trends remind some analysts of aspects of the interwar period. The legacy of the Bretton Woods order also clearly lives on in the dollar’s enduring global role, ongoing commitments to current account convertibility, the survival of the IMF and World Bank, and the formal support for multilateralism (including the near-universal membership of the IMF and World Bank).
Each of the recent transformations in the nature of the international monetary and financial system has had important consequences for the key question of who gets what, when, and how in the GPE. Monetary and financial systems—at both the domestic and international levels—do not just serve economic functions. They also serve various political projects relating to the pursuit of power, ideas, and interests. For this reason, the study of money and finance cannot be left only to economists, who have traditionally dominated scholarship in this area. It also needs the attention of students of IPE who have an interest in these wider political issues.
1. Is a hegemonic leader necessary for a stable international monetary and financial system to exist?
2. To what extent has financial globalization undermined the power and policy autonomy of national governments? Is financial globalization irreversible?
3. How important has financial globalization been in influencing class, sectoral, and gender relations within countries? What are its environmental consequences?
4. For how much longer will the US dollar remain the world’s key currency? Is the RMB likely to challenge its international status in the coming years? What are the costs and benefits of issuing an international currency?
5. Will the SDR ever become the dominant reserve currency in the world? What would be the costs and benefits?
6. Should the leading powers attempt to stabilize the relationship between the values of the major currencies? Should bodies such as the IMF or G20 play a more active role in preventing exchange rate manipulation and currency wars?
7. Has the creation of the euro been a positive move for Europeans? Should other regions emulate the European example, and are they likely to do so?
Test your knowledge further by trying this chapter’s Multiple Choice Questions
Abdelal, R. (2007), Capital Rules: The Construction of Global Finance (Cambridge, MA: Harvard University Press). A history of the changing norms regarding state control of cross-border capital flows in the post-1945 years.Find this resource:
Best, J. (2005), The Limits of Transparency: Ambiguity and the History of International Finance (Ithaca, NY: Cornell University Press). A history of the evolution of the international monetary and financial governance since Bretton Woods.Find this resource:
Cohen, B. (2018), Currency Statecraft: Monetary Rivalry and Geopolitical Ambition (Chicago: University of Chicago Press). An analysis of the relationship between power and money by one of the pioneers of the study of the GPE of money and finance.Find this resource:
Frieden, J. (2014), Currency Politics: The Political Economy of Exchange Rate Policy (Princeton: Princeton University Press). An analysis of the politics of exchange rates from the gold standard era to the contemporary eurozone.Find this resource:
(p. 221) Grabel, I. (2017), When Things Don’t Fall Apart: Global Financial Governance and Developmental Finance in an Age of Productive Incoherence (Boston, MA: MIT Press). An analysis of the changing nature of the governance of development lending and global finance since the East Asian financial crisis of the late 1990s.Find this resource:
Kirshner, J. (ed.) (2002), Monetary Orders (Ithaca, NY: Cornell University Press). A collection that highlights the political foundations of national and international monetary systems.Find this resource:
Ocampo, J. A. (2017), Resetting the International Monetary (Non)System (Oxford: Oxford University Press). A comprehensive overview of the contemporary international monetary system with a programme of reform.Find this resource:
Roberts, C., Armijo, L., and Katada, S. (2018), The BRICS and Collective Financial Statecraft (Oxford: Oxford University Press). An analyses of the increasingly important role of the BRICS countries in international monetary and financial politics.Find this resource:
Strange, S. (1998), Mad Money: When Markets Outgrow Government (Ann Arbor, MI: University of Michigan Press). A classic critique of the international monetary and financial system from one of the pioneers of the study of the GPE of money and finance.Find this resource:
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