Abstract
One of the hallmarks of globalization in the contemporary era is the ever closer integration of national financial markets. Over the last half century, as barriers to international investment have gradually evaporated, capital mobility has accelerated to heights unseen since the days before the First World War. Most informed observers agree that, as a result, the traditional relationship between states and markets has been fundamentally altered. But how, precisely? At issue is the role of the state in the management of money. What does the globalization of finance mean for the convention of national monetary sovereignty? On this crucial question, not surprisingly, views differ. Where some analysts still see a potent role for government, ostensibly the ultimate locus of legitimate rule, others discern only constraint on political authority and a transfer of power to private societal actors. Who now rules — states or markets? To say the least, consensus remains elusive.
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Notes
For two recent surveys, see B. J. Cohen, ‘Phoenix Risen: The Resurrection of Global Finance’, World Politics, 48 (1996) 268–96; and D. M. Andrews and T. D. Willett, ‘Financial Interdependence and the State: International Monetary Relations at Century’s End’, International Organization, 51 (1997) 479–511.
D. M. Andrews, ‘Capital Mobility and State Autonomy: Toward a Structural Theory of International Monetary Relations’, International Studies Quarterly, 38 (1994) 197, 204.
B. J. Cohen, ‘The Triad and the Unholy Trinity: Lessons for the Pacific Region’, in R. Higgott, R. Leaver, and J. Ravenhill (eds), Pacific Economic Relations in the 1990s: Cooperation or Conflict? (Boulder, CO: Lynne Rienner, 1993) 133–58.
See, for example, W. R. Clark and U.N. Reichert, ‘International and Domestic Constraints on Political Business Cycle Behavior in OECD Economies’, International Organization, 52 (1998) 87–120; G. Garrett, ‘Global Markets and National Politics: Collision Course or Virtuous Circle?’, International Organization, 52 (1998) 787–824; T. Oatley, ‘How Constraining is Capital Mobility? The Partisan Hypothesis in an Open Economy’, American Journal of Political Science, 43 (1999) 1003–27 and Chapter 5 of this volume.
E. Helleiner, States and the Reemergence of Global Finance (Ithaca, NY: Cornell University Press, 1994).
L. W. Pauly, ‘Capital Mobility, State Autonomy and Political Legitimacy’, Journal of International Affairs, 48 (1995) 373.
The discussion in this section is necessarily condensed. For more detail on the characteristics and implications of cross-border currency competition, see B. J. Cohen, The Geography of Money (Ithaca, NY: Cornell University Press, 1998).
Useful sources on currency internationalization include P.R. Krugman, ‘The International Role of the Dollar’, in P. R. Krugman, Currencies and Crises (Cambridge, MA: MIT Press, 1992) 165–83; and S. W. Black, ‘The International Use of Currencies’, in D. K. Das, International Finance (London: Routledge, 1993). General introductions to currency substitution include A. Giovannini and B. Turtelboom, ‘Currency Substitution’, in F. Van Der Ploeg, The Handbook of International Macroeconomics (Oxford: Basil Blackwell, 1994) 390–436; and P. D. Mizen and E. J. Pentecost, The Macroeconomics of International Currencies: Theory, Policy and Evidence (Brookfield, VT: Edward Elgar, 1996).
Representative samples can be found in Cohen, The Geography of Money and N. Thygesen et al., International Currency Competition and the Future Role of the Single European Currency (London: Kluwer Law International, 1995).
Bank for International Settlements, Central Bank Survey of Foreign Exchange and Derivatives Market Activity (Basle: BIS, 1999).
Thygesen et al, International Currency Competition, p. 145.
R. D. Porter and R. A. Judson, ‘The Location of US Currency: How Much is Abroad?’, Federal Reserve Bulletin, 82 (1996) 883–903.
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See, for example, K. Rogoff, ‘Blessing or Curse? Foreign and Underground Demand for Euro Notes’, in D. Begg, J. von Hagen, C. Wyplosz and K. F. Zimmerman, EMU: Prospects and Challenges for the Euro (Oxford: Blackwell, 1998).
D. D. Hale, ‘Is It a Yen or a Dollar Crisis in the Currency Market?’, Washington Quarterly, 18 (1995) 164.
R. Krueger and J. Ha, ‘Measurement of Cocirculation of Currencies’, in Mizen and Pentecost, The Macroeconomics of International Currencies, pp. 60–1.
Krueger and Ha, ‘Measurement’, p. 76.
D. O’Mahony, ‘Past Justifications for Public Interventions’, in P. Salin, Currency Competition and Monetary Union (The Hague: Martinus Nijhoff, 1984) p. 127.
B. Anderson, Imagined Communities: Reflections on the Origins and Spread of Nationalism, rev. edn (London: Verso, 1991).
T. Padoa-Schioppa, Tripolarism: Regional and Global Economic Cooperation (Washington, DC: Group of 30, 1993) p. 16. Padoa-Schioppa, once deputy governor of the Bank of Italy, is now one of the six members of the executive council of the European Central Bank.
J. M. Keynes, Tract on Monetary Reform (1924) reprinted in The Collected Writings of John Maynard Keynes, vol. 4 (London: Macmillan, 1971).
C. A. E. Goodhart, ‘The Political Economy of Monetary Union’, in P. B. Kenen, Understandting Interdependence: The Macroeconomics of the Open Economy (Princeton, NJ: Princeton University Press, 1995) p. 452.
J. Kirshner, Currency and Coercion: The Political Economy of International Monelary Power (Princeton, NJ: Princeton University Press, 1995) pp. 29, 31.
Literally hundreds of private monies exist around the world, particularly in English-speaking countries, but none trades in any significant amount across national frontiers. In Britain alone there are at least 45, many with exotic — not to say eccentric — names like beaks, bobbins, cockles, and kreds. For some discussion, see L. D. Solomon, Rethinking Our Centralized Monetary System: The Case for a System of Local Currencies (Westport, CN: Praeger, 1996).
For a prediction along these lines, see S. J. Kobrin, ‘Electronic Cash and the End of National Markets’, Foreign Policy, 107 (1997) 65–77. But for a contrary opinion, see E. Helleiner, ‘Electronic Money: A Challenge to the Sovereign State?’, journal of International Affairs, 51 (1998) 387–409.
A. Marshall, Principles of Economics, 8th edn (New York: Macmillan, 1948).
S. Strange, ‘The Persistent Myth of Lost Hegemony’, International Organization, 41 (1987) 564.
P. G. Cerny, ‘The Infrastructure of the Infrastructure? Toward ‘Embedded Financial Orthodoxy’ in the International Political Economy’, in R. P. Palan and B. Gills, Transcending the State-Global Divide: A Neostructuralist Agenda in International Relations (Boulder, CO: Lynne Rienner) p. 225.
R. Z. Aliber, The International Money Game, 5th edn (New York: Basic Books, 1987) p. 153.
Aliber, The International Money Game, p. 153.
J. A. Ritter, ‘The Transition from Barter to Fiat Money’, American Economic Review, 85 (1995) 134.
P. Krugman, ‘The Confidence Game’, The New Republic, 5 October 1998, 23–5.
See, for example, S. H. Hanke and K. Schuler, Currency Boards for Developing Countries: A Handbook (San Francisco: Institute for Contemporary Studies, 1994). For additional discussion and references, see Cohen, The Geography of Money, pp. 52–5.
As quoted in The Economist, 7 March 1998, 43.
B. Eichengreen, ‘International Monetary Arrangements: Is There a Monetary Union in Asia’s Future?’, The Brookings Review, 15 (1997) 33–5.
R. A. Mundell, ‘Forum on Asian Fund’, Capital Trends, 2 (1997) 13.
N. Walter, ‘An Asian Prediction’, The International Economy, 12 (1998) 49.
A notable exception was the head of the Hong Kong Monetary Authority, Joseph Yam, who in early 1999 made a spirited plea for ‘our own Asian currency’ to reduce the region’s vulnerability to speculative attack (as quoted in Financial Times, 6 January 1999).
Cohen, The Geography of Money, pp. 84–91.
Perhaps most ambitious was EMEAP (Executive Meeting of East Asia and Pacific Central Banks), a self-described ‘vehicle for regional cooperation among central banks’ encompassing Australia, China, Hong Kong, Indonesia, Japan, Malaysia, New Zealand, Philippines, Singapore, South Korea and Thailand. Other examples include SEACEN (South East Asian Central Banks) and SEANZA (South East Asia, New Zealand, Australia), both of which provide for regular meetings of central-bank officials as well as a variety of training programs.
The New York Times, 27 April 1996, 20.
For detail, see E. Altbach, ‘The Asian Monetary Fund Proposal: A Case Study of Japanese Regional Leadership’, JEI Report, 47A (1997) 1–14; A. Rowley, ‘International Finance: Asian Fund, R.I.P.’, Capital Trends, 2 (1997) 1–4.
Privately, of course, Washington also feared a loss of political influence in the region, since the AMF, if implemented, would obviously have been dominated by Tokyo. In economic terms, Washington’s response to the AMF proposal was remarkably reminiscent of a similar episode a quarter of a century earlier, when an agreement to create a Financial Support Fund in the OECD (Organization of Economic Cooperation and Development, based in Paris) was torpedoed by the US Government on almost identical grounds. For detail, see B.J. Cohen, ‘When Giants Clash: The OECD Financial Support Fund and the IMF’, in V. Aggarwal, Institutional Designs for a Complex World: Bargaining, Linkages, and Nesting (Ithaca, NY: Cornell University Press, 1998) ch. 5.
S. Awanohara (ed.), ‘A Yen Bloc?’, Capital Trends, 3 (1998). Most notably, in October 1998, Finance Minister Kiichi Miyazawa offered some $30 billion in fresh financial aid for Asia in a plan soon labeled the ‘New Miyazawa Initiative’.
J. Bhagwati, ‘The Capital Myth’, Foreign Affairs, 77 (1998) 8–9.
Special Functions Minister Diam Zainuddin, as quoted in R.Wade and F. Veneroso, ‘The Gathering Support for Capital Controls’, Challenge, 41 (1998) 20.
As quoted in The New York Times, 24 October 1998, B15.
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© 2000 Benjamin Cohen
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Cohen, B. (2000). Money in a Globalized World. In: Woods, N. (eds) The Political Economy of Globalization. Palgrave, London. https://doi.org/10.1007/978-0-333-98562-5_4
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