The End of Money Lecture 15 – Thursday, 28 October 2010 j a morrison
Yüklə 445 b.
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 The End of Money
Lec 15: The End of Money
 Lec 15: The End of Money
 I. After Bretton Woods
 The BWS was an attempt to secure the benefits of openness without sacrificing monetary policy autonomy (control over domestic price level). Keynes & White wanted to avoid the experience of the 1930s: policy autonomy secured by competitive devaluations (adjustable ERs) and protectionist trade policy. So, the BWS attempted to reconcile openness on trade and ER stability with policy autonomy by… (1) Erecting moderate capital controls (on “speculative” capital) (2) Managing small imbalances through the IMF Summary of the Bretton Woods System
 But in August 1971, Nixon “closed the gold window,” meaning: he unilaterally devalued the dollar and he suspended convertibility. After several successive conferences failed to preserve the system, the Bretton Woods System was essentially dissolved. What changed? Post-BW Monetary System
 Official ER Regimes of Major Currencies I. After Bretton Woods
 Remember that the IMF was created principally to manage the BWS. One of its purposes was to reconcile imbalances of payments. But with the transition to floating ERs, the IMF became an institution without a mission. How did the IMF react? Simply put, the IMF reinvented itself. It went from trying to alleviate illiquidity to attempting to resolve insolvency. It went from trying to manage imbalances of payments to redressing the supposed underlying causes of those imbalances. The Washington Consensus
 The New IMF: For Better or Worse
 So now we know the broad contours of the history of the international monetary system. Let’s turn to consider how we, as social scientists, explain this empirical record... The End of Money
 How do we explain states’ foreign monetary policies? Well, let’s return to Topic 3: Explaining Foreign Economic Policy Types of Explanations of FEP
 We’ve already applied these frameworks to explain trade policy. Now, we’ll employ them to explain some of the “critical junctures” in the history of foreign monetary policy (FMP). Remember that our mode here is to simultaneously... (1) use the theories to explain the empirics; and (2) use the empirics to test the theories. First… Charles Kindleberger, The World in Depression, 1929-39, (1973). “The explanation of this book is that the 1929 depression was so wide, so deep and so long because the international economic system was rendered unstable by British inability and United States unwillingness to assume responsibility for stabilizing it in three particulars: (a) maintaining a relatively open market for distress goods; (b) providing counter-cyclical long-term lending; and (c) discounting in crisis.” (p 291) Structural Theory
 Second… Jeff Frieden, “Exchange Rate Politics.” “[I]ncreased levels of financial and commercial integration drive monetary policy toward the exchange rate, make the exchange rate more distributionally divisive, and lead to a more politicized context for the making of macroeconomic policy…All else equal, domestically oriented producers prefer a flexible exchange rate, internationally oriented ones a fixed exchange rate. Tradables producers prefer a weak (depreciated) currency, non-tradables producers and overseas investors a strong (appreciated) one.” (261) Frieden: Domestic Interests
 So, FMP can be seen as a tool to serve domestic interests—just like trade. But FMP is far blunter an instrument than trade. What are the implications of that for the usefulness of this type of explanation for FMP? Third… Karl Polanyi, The Great Transformation (1944). (You’ve only had this in lecture, so I’ll recap it now.) Polanyi: Domestic Institutions
 Fourth… G John Ikenberry, “Keynesian ‘New Thinking’ and the Anglo-American Postwar Settlement.” “I argue that a transatlantic group of economists and policy specialists, united by a common set of policy ideas and a shared view that past economic failures could be avoided by innovative postwar economic arrangements, led their respective governments toward agreement by identifying a set of common Anglo-American interests that were not clearly seen by others.” (59) So, Keynesian “New Thinking” pointed the way to some kind of compromise between US and GB. (Ikenberry, however, isn’t completely consistent on the nature of that compromise.) So, in Topic 2, we developed several different ways to explain foreign economic policy: int’l structure, domestic institutions, interests, & ideas. We considered their explanatory power with respect to Trade Policy. And now we’ve done the same with Foreign Monetary Policy. The End of Money
 III. The Future of Money
 States face a number of constraints in governing their monetary systems… Counterfeiting
 Hoarding
 Currency Competition
 Speculative Attacks
  Breaking the Bank of England
 Contagion
 III. The Future of Money
 Remember that we’ve been assuming that states enjoy monetary sovereignty--the ability to control the market value of domestic currency, currency used within their borders. Jerry Cohen, however, reminds us that this assumption has rarely held true. Across most of history, the “one-country, one-currency” correlation has not been the rule. Strong currencies have traveled abroad while weak currencies have struggled to circulate even in their home markets. This raises two questions: (1) What determines the geography of money? (2) What is the future of money? The answer to both questions turns, in large part, on the operation of currency hierarchy. Currency Hierarchy
 Benefits of Monetary Sovereignty
 But if monetary sovereignty is so great, why have several European countries given that up to adopt the Euro? McNamara on the Euro
 Are such currency unions the wave of the future? Europe might be special. Cohen thinks so. But McNamara seems to disagree. The answer might well depend on whether the Europeans save the Euro! What we Did Today
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