Currency and Coercion: The Political Economy of International Monetary Power by Jonathan Kirshner

Author:Jonathan Kirshner [Kirshner, Jonathan]
Language: eng
Format: epub
Tags: International Relations, Political Science, General
ISBN: 9780691222226
Google: lkT_DwAAQBAJ
Goodreads: 55560111
Publisher: Princeton University Press
Published: 1995-10-16T00:00:00+00:00

The Dollar and Enforcement

The United States during the postwar era was at the center of a dollar-based international economy. The nature and design of the system were not accidental, but were tailored to fit the economic and political goals of the United States in this era. After World War II, the United States was in a unique position to reshape the economic structure of the world. Its preference was for a system of payments that would be multilateral, nondiscriminatory, and based on the dollar. Under the Bretton Woods system, currencies would be fixed relative to the dollar and defended at those parities, primarily through the use of the dollar as a reserve currency. The dollar itself was fixed at $35 per ounce of gold. Parities could only be changed with permission from the International Monetary Fund, and then only to correct fundamental disequilibria. This system was designed to allow for some discretion without plunging into the monetary chaos and competitive devaluations of the 1930s.105

The United States wanted Britain and the rest of Western Europe to move to an open, multilateral payments system as quickly as possible. Its motives in this regard have been attributed to economic, ideological, and security considerations. From the economic perspective, the United States wanted to ensure access to important markets. This meant defeating any attempts at “national” capitalism that might arise in Europe, and dismantling systems of imperial preference, such as the British one. From both an economic and a security perspective, the United States, in a position of hegemony, stood to gain from an open international system.106 More directly, entrapment of allies in a U.S. dominated monetary system was another important link in the emerging U.S.-led anti-Soviet alliance. Finally, and importantly, many officials in the United States believed that the breakdown of an open multilateral international economy had played a role in the causation of World War II.

For all of these reasons, the United States attached great value to the success of the dollar system, which was one of a number of economic and security arrangements founded by that state during this era. Therefore, even though the United States desired multilateralism and nondiscrimination, it embraced the comprehensive practice of permissive currency manipulation, tolerating temporary violations of both of these principles in order to allow states to recover from the war. Broad exceptions to the IMF rules were tolerated until 1958, when most Western European states finally restored full convertibility.

Because of the absolute size of the U.S. economy, and the system of payments and finance of which the United States was at the center, the world was on a de facto dollar standard. The theory of dependence would suggest that the United States would be well placed to exploit monetary dependence, especially during recessions. On the other hand, both theory and empirical findings, such as those from the British and French cases, would suggest that the United States would be reluctant to explicitly exploit this monetary dominance, because of the gains it accrued in terms of

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