International Monetary Power

7. Currency and Coercion in the Twenty-First Century

Most scholarship on monetary power—and especially those studies that have focused on the manipulation of currency values and monetary arrangements to advance political goals, or what this volume terms monetary statecraft— have emphasized the experiences of the twentieth century, and in particular the years 1914–89, the period between World War I and the end of the Cold War.1 In the early twenty-first century, however, two conditions, less salient during those seventy-five years, are of dramatically increased significance: globalization and unipolarity. How do these factors affect the prospects for and practice of monetary statecraft? In particular , has financial globalization—that is, the presence of very large, integrated and influential currency markets—radically circumscribed the capabilities of states to practice monetary diplomacy? This chapter argues that although the consequences of globalized finance are profound, they recast rather than reduce the significance of monetary diplomacy in contemporary international relations.True, the analysis must shift from an almost exclusive focus on state-to-state interactions to one that places much greater emphasis on the relationship between states and markets. But even in an era of globalization, international monetary relations remain an area of political competition.As long as there are states and money, states will attempt to manipulate monetary relations to advance their political objectives.             Currency and Coercion in the Twenty-First Century Jonathan Kirshner For helpful comments on earlier versions of this chapter I thank RawiAbdelal, DavidAndrews, Scott Cooper, Eric Helleiner, Kathleen McNamara, Beth Simmons, and the participants in this project. 1. See for example Paul Einzig, Behind the Scenes of International Finance (London: Macmillan, 1931); Charles Kindleberger, “The International Monetary Politics of a Near-Great Power: Two French Episodes, 1926–1936 and 1960–70,” Economic Notes, no. 1 (1972): 30–44; Jonathan Kirshner, Currency and Coercion: The Political Economy of International Monetary Power (Princeton: Princeton University Press, 1995). For a good critique of this literature, see Benjamin Cohen, “Money and Power in World Politics,” in Strange Power: Shaping the Parameters of International Relations and International Political Economy, ed.Thomas C. Lawton, James N. Rosenau, andAmy C.Verdun, 91–113 (Aldershot, UK:Ashgate , 2000). 139 Two clarifying comments are in order. First, the catch word “globalization” captures a number of processes that occur across several dimensions, such as information flows, economic exchange, and marketization. But for the political analysis of monetary relations, one aspect of the intensification of economic exchange—financial globalization—is of paramount concern. To be clear, the analysis that follows does not presume that globalization is novel, irreversible, or irresistible. Rather, the point of departure is that it is here now and that it matters.2 Second, contemporary globalization takes place in a specific political context, that of U.S. preponderance or unipolarity. Space constraints do not permit a lengthy elaboration of its consequences, but it is crucial to recognize that unipolarity powerfully shapes the possibility, politics, and nature of globalization and shapes the political practice of contemporary monetary power.3 This chapter proceeds in three parts, with sections that consider how globalization (and also unipolarity) recast the practice of currency manipulation, monetary dependence, and systemic disruption—the three principal instances of money statecraft that I consider in Currency and Coercion.4 For each of these, I use a number of cases from the period since the end of the Cold War to demonstrate that although financial globalization is important in transforming the nature of monetary diplomacy, it does not reduce the significance of monetary power as a feature of world politics.The goals of this chapter are therefore to illustrate the continued role of monetary power and to assess the transformation of monetary statecraft that results from these changes in the global political and financial environment. Currency Manipulation Of the three aspects of monetary power mentioned above, the practice of currency manipulation would at first glance appear to be the one most inhibited in an era of globalization. This is a logical deductive inference. Given a floating exchange rate and the enormous size of financial markets, in most cases it will certainly be much more challenging for even the most powerful states in the system to successfully engage in the archetypical act of predatory currency manipulation—selling a target’s currency on the open market to force depreciation as an act of coercion. The ratio 140 Jonathan Kirshner 2. As David M. Andrews has argued, financial globalization (or more specifically, the level of capital mobility) “systematically alters...