Reading 3 - Steven R. Hall

231
15
HegemonicStability
Theoriesof the International
MonetarySystem
BARRY
EICHENGREEN
tsdrrvlii henS'cpnc!lludlpj thc rpplic.rhility
ot hcSpmonr\lJ.
nrrrt\theoryr\pFKr.rsner.
Rt.,rdrn8
l, and I tle, Rprdrnr8Jlo rnternational
monetaryrelalion5.
lJe examinosrhe ar8umentrhat
the exist€nceof a sinSledominanlpower in th€ international
arenarsnecessary
tor thc cstnblishnrenl
and mainlenance
of sla
Dremonetarysystems.Eichengrcen
exnminesthreemonelarvsvs,
tems the classicat
gold slandard,the inrerwargotdexchange
syslem,and lhe BrelronWoods system-!o seewhetherIhe pres,
ence or absenceof a hqtcmon wns rhe prinrjry causeof lheir
developmenland mainlcnan(c.lle tindsthnl while hecemons
may contributelo the smooth opcrataonoi ,ntcrnalionalmonelary reSimes,internalionalcooperalionhas been equallv imoor
I.,ntto rherrdc\iAn.rndrun(rionrnA
An inrcmalionalmonelarysyslcmis a scl of rulcsor conveniions
govemingthe
economicpoliciesofnarions.Froma n rrowlynnrionatpcrspecdve.
il is rn unnat,
urals|ateofaffairs.Adhercnce
to a com,nonserof rulesorconvenlions
requjres0
ccnainharmonizalion
of monelaryand tiscrl policies,cvcn rhou[h lhe Drefer,
cncc\rnd con\rrainl.innuencrnF
di\eraern"t",rrr',.,nInti(y t)m)ut.llron
c,runrrics.
C,'vemmenl\
arcc\pccrcdh, r,,r,qcrrpotrcic.tharredrvrihutc
economicwelfareirom forcigners
to donrerric.csidcnlsandlo conrribulcvotunhrily
lo providing
rhejnlcmali,,nrt
puhtic8({lLtof SIobJlmoncrnr}
\ubjtrr) In ctrccr.
rheyrr Ap(red b rclre rhcdcrc.rrhtnrhtc.rrtr ptrEU(\uneh and_-cqurv.
alently.in
rhi\ conre\r-rhefrcc.ridcr
prohtc,n
hindenng
puhticgud pmrrrion.
Sincelhcy a.e likely ro succccdincomptcrcty.
rhe public good of inlemation{l
monchrys|abilirylendsro be undcrproduccd.
Frcmrhisperspeclivc.
lhc prrador
BlrryEichcnsrecn He.ecmonisr,hilny Thco,csof rhcI nkrnlrtunat
M.nera Sr{cm .-Frcmcn.
NaridtsAsrc.? knes n hrpmalionnttf, onon,t (ir{,.rar,, (Wrshi.lbn:
ThL Brsrinss In{iru
lr.n),I939.pp 255 98.Rcpnnlcdby ncnnAsion
ol l.lt Bro!,ng\ lnriurion
23n
of int€malional monetary affairs is not lhe difficulry of designing a srable inremational mon€hry system, b|ll the fact rhat such sysrems have acruatly persistcd for
Specialistsin inremalionalrelalionshavc offered ftc notio.lhar dominanceby
one country-a hcgcmonicpowcr-is ncededro ensurcrhcsmooth funcrioningof
an Inremarionalregime.The concenrrarionofcconomic powcr is seenas a way of
inlem izinflthe exlcmaliricsass(*-iarcdwith systemicsrabitiryandofcnsuring its
adcquareprovision.The applicali{)nof this 'theory ofhcgemonic slabjtily rointcmalional monetary affairs is slraighllorwnrd.Thc mainrenanccof lhe Brc on
Woods systcmfor a quancr cenruryis as€rib€d(' rhc singularpowcrofthe Unircd
Stntcsin the fx)(war wodd. mrlch as rhc persist€nccoflhc classicatgotd srandnrd
is ascribedro Britain's dominanccof inrcmalionatiinanciat aftairs in thc s€cond
halfofrhe ninerccnrhcenlury. . . . By contrast,lhe insrabiliryofthe inteNargold
cxchangc srandardis a(ributed to lhc rbscncc ot a hegcmonic power. duc to
Brilain's inability to play rhe dominanr rolc rnd Arnerica s unwillingnessro acThc appealof $is notion lics in irs rcsonanccwirh rhe public good and carrcl
anllogi€s for intem.rional moncraryaffairs. throughwhar might be cattcdrhecar
rol and slick vdiants of hegcmonicstahiliry rheory.ln rhecarror varianr.the heftcmon. like a dominanrfirm in !n oli8otnlisric m..kcr, mnintainsrhc cohesionofthc
canel by maling the equivalenrofsidc payincnlsro mernbersofrhc fringe.In lhc
slick varianl. rhe h€gcmon.lite a dominlnr tinn, dclen defeclion from ttre inrcF
nalional monetar] cancl by usin8 irs econooric policies to lhrealen relalialion
rgarnsl rencgad€s.In srmna versionsofthc rhcory . . . l]ll pnnicipanrsare rcndcrcd
hctler offby t}le intelcntion of lhc dorninantpower. In wcak versjons. . . cirhcr
bccau\c systcmic (ability is not a purcly publi. good or bccaus. ils co(s arc
shuntedon(o smaller starcs,thc bcncfitr ol slnbility rccme djsproFnion lcly or
evcn cxclusively to rhe hegcnmn.
Th.ee problemsbedcvil a(cmprs lo lpply hcgcmonjc(ahitiry rhcory ro inlcrnatronnlmonetaryattrir!. First is Lhcamhiguity surroundingth.ce conccprscentr.rl to lhc theory: Ieeerkrr., thc /,or?r lhc hcgerrronis nssumedro posscss,and
the z?i,,e whose shhiliry is osrensiblycnhancedby rhc cxerciseof hcgc'noni!
power. Rathcr than adopringgenernldctiniri(Dsolfcr€d prcviousty and dcvoring
lhrs papcr to their criricism. I . opr spccializcddctinhtunsraihred ro my concenr
with the intematjonal monetnry sysrem.I crDpk)ythe ccononri:il'sdcfinilion ot
..onomic<.
marter powe.j sotficicn! sizc in rhc .clcvrnr mar\cr ro in0ucocc
pnces and quanlilies. I dcfinc a hcgemon anak)goraly ro I dominant fiml: ,s a
counrry qhosc mdket power. undcr(ood in rhis sensc.significandy cxcecdsrhlr
of all rivais. Finall). I avoid dcfinin! rhc conccprof .cginc around wh;ch much
debnlc has .e!olled by posjng lhe que(ion n.nowty: wherherhcgcmony is conducivc to the slabiUryoflhc inlcrnalionol monctffy syslcm (wherc lhe sysrcmis
dcfincd .s thosc cxplicit rulcs lnd p(xcdurcs sovcming intemarionalnronclary
:rttain). rathcr ihan whcrhcr ir is conduci!c 10 Lhc shbitity of Lhc inlemariDnrl
rcsimc. howevcrdefined
H.8.m.ic
Stabililr TlFo'ie
ot rhe Inrd:toDl
Md.l.rr
233
sFr.d
inlcmrtional moncrr.y al]ain is Drbiguily aboul lhc instrurncnlswirh whicb rhe
hegcmoomakcs its inllucnce felt. This is thc dislinction bclwcen whar arc characbn7€d abovc as thc c,rnorand srick variantsof(hc theory. Docs the heScmonaher
ils nx)nclary. fiscal. or commcrcinl policies to disciplinc counrricsrhal rcfusc ro
play by ils rules.as bnsicfbrcc modcls of inlcmational rehlions would sutgcsr?
Docs il link intcmalioral cconomic policy k) orhcr issuc easand imposemilir.rr}
ordipkn ntic sanctionson uncooncrarivcnati()nslOr docs ir stabilizerhc ryslem
throughlhc ure of tx)ririve sanclions. financing the public go(xl of anrcmational
monelary slabilily by acling .N lcndcr of last .cson cvcn whcr lhe problbiliry ot
repayrncntis sljm and forsrking bcggrr,thy-ncighborpolic ics cvcn when uscdro
advantrgeby other countriesl
The lhird problem is ambiguity ak)rr |ne scop! ofhegemonic slabilily rh.oncs.
In principlc. suchthcoricscould bc npplicd cqually to the dcsign. rheopcturion,or
lhe declinc oflhc inlcmrlionrl monetary syslcm. Yer in prlcticc. hegenroricstability thcories may shcd light on thc successot ctbrts to dcsign or retbrn the
inte.nntjr)nalmonclary systcm but nor on ils dry-k),day opcrnrionorcvenrual dc
clinc. Other comhinationsare equally plausiblcI priori. Only analysisol individual cascs.!n lh.ow light on thc lhcory s raDSeol npplicabilily.
I n l h i sp a p c r , l s t r u c l u raen a n a l y s i so f h c g e n n ' n i cs l a b i l i t yl h e o r i e s o t r h ci n r c F
nationrl monetarysy(cm around lhc dual problemsof rangc oi applicabiliry lnd
modc of implcmenl{lion. I considcrsepl]ntely thc gcnesisot intcmauonalinonc
lary systcns, their opc..Iion in nonrr.rlpcriods rDd tinrs ofcrisis, and rhcir disinlcgraLion.In cach contcxt, I draw cvidcncc from threemodcm incamarionsofrhc
nrtemrtronalmonct!ry system:lhc cl.rssicrl Sold slandard.thc inlerwar gold exchangcshndrd. aod Brcllon Wo{xls. Thcsc thrcc cpisodesin the hisrory of thc
intemationrl moncr.rrysysrcmnrc lypicllly dxruShtk) offer tr\o cxamplcso[ hegemonic slability Brihin beforc l9l.l. lhc tinitcd Srrles :rlicr 19.14- nd one
cpisode-the interwar years <jestubilizedby lhe abscnccofhcgemony. Idonor
attcmptlo dGumenl Brirain s dominanceof intcmational mrrkcls beforc t9 |.l or
thc dominanceof thc United Srarcsalicr 19.14:I sinrply asl wherherrhc narker
powcr (hcy possesscdwrs cau\ lly connccredk) lhc stahiliry ol fic inlcmational
Thc historicalanalysisindicalcsthal lhc rclationshipberwccnth€ rarkcrpower
ot thc lcrding economy rnd thc srnbilily of drc intcmational n)nctrry sy\rcm is
considcr:$ly more conrplex than sugSesredby simplc varianrsof hegemonicsla
biliry lhcory. Whilc onecnnnol simDly rqecr lhc hypothcsislhal on more rhanone
occasionlhc slabilizing capacily ol a dominant ec()nomicpower has conlribuled
lo the snx)oth Iunclioning of the intemational nmneliry systcm.nei(hcr crn onc
reconcilcmuch ofrhe cvidence.nolrbly on lhc ccnrral rolc of inlemattunalnego
riitjon rnd collaborari(nrcven an pcriods of hcScmonicdomir ce. wirh simplc
vcrsionsof the theory. Althou8h both the sppctil and limihrions of hegcnlonic
rtability thcorics are apparenlwhcn one raker lr sratic vicw of lhe intcmarional
monelary\yslem. thorc limibrions arc mosl elidcnl whcn onc considcrslhc €volution of an inrematioDalmonerarysystemo\rcr lime. An inlcmalional monerary
sv\retn
whnsF smoAth ii..rxtinn
xi.n.
n^inr
i( ircdn.xrei
^r
ih.
/^nnnn.-
^.
oncpowcdulcounrrymay in lactbe dynanrictrlly
un(abt€.HistoricatcxDericnce
sugSests
rhatthc heSemon's
willingnessto actin a srabitizing
capaciryara singte
pornllcnds(o undcmineilsconlinuedcapacirylo do soovcr rimc.. . .
THI] CENtrSIS OF MONE'I'ARY SYS'TTIMSANI)
THE THEORY OF H'GEIIIONIC STABILITY
My analysisbcginswith ancxaminarion
ofrhc gen€sisotthreediffcrcnlnrcnetary
systcms:
fte chssic.rlgoldsrxndard,
thc inrerwargoldcxchrngeslandard,
andrhe
Brettr)nWoodssy\tcm.
Thc ClasricalGold Standard
Oflhe lhrceepis lesconsidercd
here.rheorisinsof rhcctnssical
.re
sold standard
thenrcsldifficuh to assess.
ft)rin lhc ninclccnlhccDlurylhcrewercno ccntralized
discusstuns.
likc thosein (]cnonin 1922o. Breto. Woodsin t944. concemcd
with rhc dcsignof the internarrural
moncrarysysrem.there wasgeneralagreemcntlbrt curcnciesshoDldhavca mcrallicbasisandrharpaymentsinrbatanccs
shouldbc senledb)-inrcmational
shipmenrs
ofsp€cic.Burrhercwnsnoconsensus
atx)utwhichprcciursmctatsshouldscryensthebasistor moncysuppties
or how
frceinlemarionnl
spccienro!cnrcnts
shoLrld
be.
Only Brirainmaintlineda full-lledScdgoldslandardlbr anyrhinSapproaching
theccnturvprc.cdinSl9ll. Atrhoughgold coinshadcircularedahnA:tidesilver
sincc$c lbunccnlhcenrury,Brirainhadbecnon a de fi$lo gold srandard
sincc
171?,whenSir IsnacNewlon.
asrnaster
of theminr.scrroohisha sitvcrpriccof
gold anddrovefrll-bodiedsilvcrcoinsfrom circulation.ln 1798silvcrcoinage
w.rssuspended.
rnd rtlcr l8l9 silver was no lonSerncccpredro rcdccmpaper
cuncncy.But for h.rlfaccnturyfollowinpitsofncialadoprion
ofrheSotdrrandard
in | 82 | . Britaincssentially
rcm!inedalonc.Othcrcounlr;cstharrclaincdbimeral,
lic slandards
wcrc boffctedby alternaring
goldandsilvcrdiscoveries.
The Uniled
Srarcs
nndFnncc.hrexamplc,wcrcofficiallybimcrallic,burtheirinrernalcircu
Iationswereplaccdon a sillcr basisby srowingMexicanand SouthAmerican
silvcrproductionin lhe e.fly dccadcs
oflhc ninelccnlhcenlury.Thc markctprice
ol silverwasthosdcprcssed
kfiriv. ftr rhcnrinrprice,$,hichcncouragcd
siho lo
bc imponedforcoinagclnd goldto bc shipprdabrcadwhereirspricewashighcr_
Thcn.slanin8ir l8{13.Solddiscovcnesin Russaa,
Ausrrrlix,andC{litimia de
prcssedrhemarkctpriceofEold bclo* rbcminrpnce,all hurdrivin8sitvcrfronr
circulationed placingbimctlllic cuFcncicson a gold b,rsis.t-inatty.sitverdis
covcricsin Nevrdr andotherminingrcrriroricsstaningin rhe 1870sdrumrrically
inllalcdlhe silvcr priccot gold andforccdrhc bimeralliccunenciesbackontoa
Thc la( of thcscdisturbanccs
lcd nearlyall bimclalliccounlrieslo adoptthc
r.kl srrnrlrrrl r|lnino uirh .i.rilrnw in rRTl whv
rri.r trLina n
234
He8.moni. St.bility lh€ori6
of the Inrd.arioMt
Md€lary
Svctem
acoonIn responsc
to previousdislurbanccs.
did counrricsresDond
ro rnsr,l870
fluctuationsin rhc priccoi silverby abandoning
bi,ncraism andadopring8old?
what rolc. ifany, did BrilaiD.thc hc8cnoric financiatpowcr,play in rheirdcci_
B!, ncithcrBrirain.s
dominancc
or inrema,ionar
ka-"::.:i
,", .
-*,ds
"
r-m
ra;r.r;ng,r,
g.id
:il"'j:i:
31ii,::,ri:*1
Hffi fl;".i1:l
"'iiliiii"-,3m
i.,,....";:;1lt*;:t[,:#;trj,:*1,:ii:if
Onercaronlorlhc decisionio adoplgold wasthcdcsircti) prevenltheinnJlion
lhat would resullfronr conlinuedsilver convcnihitiryand coinage.Hencerhc
plausiblecxplnnalbntor lhe conrmsrhetwecnlhc lliT0sandeartierycs is lhe
dangerol c\ccplxlnrlly raprdrnflationdueto th. n|lrsnrruijc
ol posr-'n70\il\.r
Brirish
€)(anplc
discovcrics.
Berwceol8l4 .md 1870,rhesrcrtingpriccofsilver.ofwhich somuch
or sussesrbn
tticrarc
rrrcrorrnor rrrc
l,'":.,L.1.T"*
"
waswnlrcn.rcmainedwirhin 2 pcrcenlaSe
poinrsof irs I 8 | 4 value.altemarivclv
dri!inggotdor \ilvtr fromcircul i',nin bimcr.ric counrnc\
butnucruarrnp
rn\uificicnllytorriscrhc\pe(rc'ot\ienificanrnri(ctc!ct(hJnrc.Thcnbcr$e;nlx7l
Th€ Int€.war cotd UxchangeSlandard
andl88l ihc Londonpriccofsilverfcll by t5 pcrccnr.rnd by l89l rhecumularive
fall hadrcachcd25 pcrccnr.cotd convcnihililywasthconly atremarive
roconrin,
uedsilvercoinagcrhrr wrsjudgedhorhrcspccrnhtc
and!iabte.The onty si8nifi,
cantrcsislancc
to thcadoptionof8old convcrribiliry
cmanalcdfromsitverminina
regionsandliom r!'i(ulruml arca\like lhe Amcricln wc\t. Iloputated
by pft,tn:
etorsofcncumbcrcdland*ho mighlb€ncfirfr(nninflarioo.
fthcde\rgnofrhcinrcrw.rr
Slrenfro'n thispcrspecrive.
the impcru\tor adoprinSthc gotdsrandard
m,,rrcrJry
sysrem
exisred
ucreaired
independenily
of Bnlain'srapidindusrrirlizat,on.
dominance
of inremalionat
finarce,and prcemincncc
in trade.Srill. rhc Bririsheranrptcsurctyprovidedencouragcmcnt
to follow lhe parhultimrtetychoscn.The cxDer;ence
of rhc tllin
MonetaryUnion imprcssedupon conrcnporaries
the nd!anlagcsof a common
mon€larystandardin minimizingrransactions
co(s. Thc scoDcof rharcommon
standardwould be Srcalcsrfor counrricstharlinkcd thcir cuncnciesro slertins.
'lhc
goldslrndlrdw . JI\, dtrractrve
q,th D;ro J,nnc\liLintcrc,r\Lon(cmc,t
motingcconomicgrowlh.Indusrrializrtion
rcquircdforcigncrphat_andatrracring
forcigncapitrl rcquiredmonctary(abilily_ F('r Rrihin. the pnncjpalsourceof
forcigncapi(!1.nrcnclnrysrab;litysns ncnsurcdin rcnnsofsterlinaandbestcnl h e _ w z rf o p r e \ T n rJ c n J t i o n .r h e yJ d v o c a r e d
suredby joining llrirrin on 8old. Morcover.Itr)ndons ncnrmonopolyot rrjde
r n . r . o U n r f l c \L \ l , n ( r D r / cu n r h cu s c
crcdilw$ ofconccmlo inhcr Sovemmcnls,
whi.h hopcdlhai rtreymighrrcduce
lheirdependencc
on thc lrndon discountmarkclby cslabtishing
goldpariliesand
cent.albanfts.
Awarclh.l B.ilainmonoptizcdrradcir newtvmincdgotdandwas
thehomeol thcworld s lnrgcsrorganiz€d
comrnqlitymlrkels.othergolcmmcnrs
panicut*-ly_if.rhc
Lrnircd
srncsrors;veirswardebr
hopedthatby cnrul.IinsBritains gold slindardrnd financialsysremfiey mighr
;;;,;,;;;ffi;
. n"'.,r".t,,ndcncournpe
","t,,,_
(.,un,a",
secure,rshar€ofthis busincss.
ficd,r,,r
u,
rnon,
,i,i.n.
il,,l.,",jl
Brit.rins promincnccin forcign commercc.overscasinvestmenr,
"*,"u,r
and rade
credit forcclullycondilion€drhe etolurionof lhc gotd srrndardrysremmainty
lhroughcentrrl banks'pracliccof holdinSkcy currcncybalancesabroad,csDc,
senrc.\rn(tnerccivcd
r\ lcs\urlcnrthence.tIC
cially in Lon(lon.'lhis pracljceprobrblywoutdnor hlvc dcvelopedsoquicktyif
foreigncounlricshadnol grownaccusromcd
lo lranrrtinS in fte Londonmarker.
ll would proh,rhlynor havebecomeso widcsprcd if thcreh.d nol beensuch
strongconfidcncein lhc slabiliryaBdliquidiryof slcrlingdeposils.And sucha
largeshrrcofforci8ndeposilswouldnot halc Srav;talcd
lo a singteccnr€rit Brir.in h,d notm.(.r{.d (rx.ha hiohlv,nnrrt,r..ic.r
(,ffin,n,riat
narr.r\
:*$:.i,.,.trt
Lt#n[T
tffi Hfu]t
;,**,$;'nl
di'i'icrcn,
pic,ure:
.n,he
I'i;:"'i:i:.:'-',:l:illfiJ:'J:il1":ri::"
r*r*r'|v
ti;:
;ffiTil,ii,i:;;.iH{t:;
Ii*h:r;::lftljf
;'.ffi:::;,tT
#:ril|il:,il:::j;ff.':
lTtI;iT;!:*:,l
J_t
fi fiTi
J:'H:l,,J::Tl';t,:1"iil
J::,1il
;tr*i:ti:l;;,i;
i,:.11!iiii!!:ii:
jj$i:iifi
;nnru;:,1;j:l
;::r"j:*
"::,":l*:'.f"Tl,ffi
ft :,ilfi
:;:r;"..;J:ff
mln'lrul*:*"*
li1ilt:""ri:fi
lH:.:ilt":x,;,,,-t#
J:x."t'
i:-*i' ru4 n;#J,ft
:5iff
,iltTn,::l*l
*::"tTr:
:li$:il ill*t
;i11
":t',j!fi
jil;"::'ilii
:ti#::T":::
:iir,f
.r;ffiumnj:
lFll"l
jH"i::
liilr",i
]ililir"tt:",#t
I il,;:?il'til1
:il;:li:iiii::l
iTil"
r.m;xxl,llltit:i;n.#*ril:itilJ'il.ill
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:#il"':"."j"-"1.i::1::,1;lJ:J.iJ
;:ff J":l,n':lllll*:::hil
236
HeBemonic
Sl.bilityrlForier of the Int.m.lion.l Mmel.rt SFlm
for thc rcslutions ofthe Financial Commiltec of the ce.oa Conference.. . - Pe
ticiparing countrics would lix rhcir €xchangemrcs againstonc another,and any
that foilcd 10do so would losc lhc righr to hold the reservcbrlancesofthc orhcrs.
The principal crcdik)r nationswcrc cncouraScdk,lakc inn cdiatc srcpsto rcsrorc
convcrtibility in order lo be€omc gold cenlers whcre lhe bulk of torcign cx
change reservcs would be hcld. Following carlier rccommcndations by the
Cunliffc commiuec. govemmenrswere urSsd to cconomi/c on gold by climinat
ing gold coin fron cjrculation and conccnlrarinSreservcsar ccnlral hanks.Coun'
lries with siSnificantly deprcciarcdcurcncics \,crc urScd r() stiibilizc al current
exchangerates ralhcr than atrcmpring to restorc prcwar prrilics through drnsric
denation.which would only dcby srabilization.
To implemcnt lhis conventi('n.lhe Bank of Ensland was in(ructed to crll an
early mee(ingof ccnlral banks, including lhc Fcdcral ReseNc. Bur cffons to !r
rangc this meeting.which boggcd down in rhc dispurcover wrr dcbts and rcp,ra
rions,proved unav.riling.Still. if thc official convcndon rdvoc,rled by thc I:ioancial Commiucc liilcd to marcrialiTe-rhc Gcnoa rcsolulir)nswcre not without
innucnce. Many of the innovalions suggcslcdthcrc *cre .rdoprcdby individual
counlrieson a unilalcral basisand compriscd thc distinSuishinstcaturcsdilTcr.nliaring the prewar and interwar monelary slandardr.
The lirst elfcct ofGenoa was to encouragclhe adoption ol (a(utcs pcrmining
ccntral banks Io back noles and sighl deposils with ioreign €xch gc as well as
8old. New rcsulattunsbroadcningrhe definirion ofeligablc assc$ .nd spcciDins
nrinimum proporlions of roral rcservesro bc hcld in gold wcrc widely inplc
'l
mcntcd in succcedingyears. hc sccondcfitcr was lo €ncouragelhe adoptionof
gold cconomy mcasurcs,including fte \!irhdrawal of gold coin from circulalion
and provision ofbullion for cipori only by lhc authoritics.The lhird effcct w.rsto
providc sublle encoungementlo countricscxpcricncing onSoinginflation ro stabilizc aldcprecillcd ratcs.Thus Gcnoa descrvcspanialcrcdrl lbrlranslbnninS the
inlcrnrLionalmonclnry sy(en lronr a gold kr ir gold cxchangc srandard.lhnn a
gold coin to a gold bullion sbndard. md fft)m a llxed ratc systemro onc in which
ccrlralbdks wc.c vc(ed with somc discrelion ovcr lhe choicc ofoarilies.
Cilcn its dominuncc of lhc procccdinSsrr Genoa. Rritain s imprint on the
intcrwr gold cxchrngc slandardwas !srpparc'il rs its inllucncc ovcr thc slructure
of thc prewar syslcnr. That Brili\h policym.rkcrs achieled rhis despire a pro
nounccddeclinc in Brilain s posilion in lhe world cconomy and thc opposirionof
influcntial Amcrican officials :iuB8eststhat planning and cffon were subslilulcs,
l0 somecxtcnt, for cconomic Dowcf.
Thc Bretton woods system
Ol thc threecascsconsidercdhcrc. ti.S. dominanccof thc Brctton woods ncgotinlions is mosl clcarly supponi!e ofhegcmonic stability lhcoriesabout thc gcnc
sis of th€ inlemalional monctary system.U.S. dominancc ot the postwar world
..6n^mv i( nnmi{rx!rhl. Y.t n.s.ire ih. rrrnnino( oth.o.m.hv ,nrl Am.ri.,n
sarryEichenEreen
237
dominance
oflhc pro€eedinSs
at Bre(onW(x)ds,a tessinnucnriatpower_-Crear
8rit.ln. $a. ahh ro'ecuresunri\inFlv
c(rcn\ivc
c.*^ri_.,",r,",t*a",,i,t*
InrcmiiUondl
nn'nelarys),stent.
Americrnand Bririshofficiatsotfcreddift.crcntptansti,r pos(war
monelary
reconsrrudion
bothbecruserhcyhad.tiffcrcnrvjewsor rhc problemof rrrrcma',
rionalcconomic.rdjusrment
andbecause
thcyrcprcsenled
cconornies
wirh dil[crcnt st.engrh\3nd s,eaknesscs.
Aritish o icials wc.c prcoccupiedhy two
wca(nesses
of thcircconomicporirion.Firsrwrs thespccterolwidc.sprcarl
unc[_
r0]x.umnrpr,,yr
cnI'nErirain
h.rd
\ aftcrydrnrlrd
l,:ll.ll:"1
.1"y":1.'"rg
nrrirwd,ubtc
drlit ]clct\."nd
andBnrFhpotnymxtc., t"rrc,t ,r. rc-.r.^ e. Sc."n,j
wrs rneproDt.|lr,!t
.rcrtrnp
hrt.rncc..
BrirJrnhJdconccnrmrcJ
irsudnrmcpur
chascswirhin rhc srcrlin8bbc xnd. bcc.tuscrhcy werc attics
anrtrtertinew:rsa
rcscrr((unency.Incmbcr\
o{ rhehtitr.hrd rc(cprcd\c|lt(mrnrrn .rcarngn,,w
hcld in l-ondon.SincerhesesrcrlinSbahnccswcreta.gerelntrvc
to Bri(ain.shard
currcn(yrcse^(\. rhcmercpo\srhililythxlrhcyn)ightbeprc\cnrcd
for colvc^rn
Inre.'lcn(.J
plun\11r.
tltr,re\ror i,,not (on\cnrbrt!
U.S olficral\.In (r'nrra\r.wc,c c"nfidcnrrhrr rhc (onrp(Dlr\c
po.iri,\n,,f
Anrric,rn industrywassrronSrnd wcretintc concem€d
aboutlhc rhrcarolLrncnr
pl,'ynrcnr.
Thci,n(cn||J|k,n(,r!r,t.jre\en(.\in rhL.
UnitcdSl.rrc\.
combrncd
*rrh
lJrr\c(JprrJt ,qs ir torci$nr,,vcrnmenr
poticrc.mrgtrr
unacmrrne
rtc,t,ittar.s
r
rhepro$rh,rf prcfer(nri.rr
rmirrn8
\).r( \
:l1l'lll.
In\munr :h rl\ c\t,nrss(rc c\(tudcd.nolJhlyrhc\tertin!hto(
ThcBntr\hvr(q ,,f Intcmnfurnl
e.r,nomic
r.!u\lrncnrwJ\ d.,mrnalcd
by (r,n_
ft'm JhoutInldlqurrctrqurd,rlJndrslmmcrri(utrdiunmenr.
a cenrrrtie*"n
oruwn,hy
BnrrrhE'trcymJle^tri,mthecrpcncncc
or rheIg2r)\$J\ rhcdrtficutry
or opcmhg an rnrcmrtionrtmonchrysysrenrin whichIiquidiry
o. rescrvcs
wc;
\crrcc.Gilcn howst.stJ rhest,,hJtsuppty
or moncrrry
gotdrAt,,ndcd(o ftu Uaron\ In rt\ rctrrrrcfri(c.rnd how:cn,itiv( rl\ Intcmatk,nirt
d,srnbution
hid
pft,vcnro be ro rhecconomicpolicicsofindividualsrares.
rhcyconsidcred
ir tirct-
r"".",lJ
nrrncrlr)sy\renr
.,nl ,.\eruch .e (.omloscd
c\.
1,"-"ionar
c11191111
l u \ r v c l yr , r e , n d .C
i v ( n r h e| e r c c r r c dI n c t J . l i ( r r yi , r g l o h r tg , , t ds u p p t i e . .
r gol.j_
based.sysrcr
rhrearcncdro
impann dcnadonary
biasr.,t *orfA
ri,aiu
worscnunemptoymcnr.
"
Thasprcoccuparion
".o*,.y
wirhuncmpkrymenr
duero cxrcmat
constrainlr
wasrcinforccd
by a orhcrlesson
drawnfromthc t920s:rhecostsof
'" '"" ,,p..,jonLr rrrr riuvmcnr
inr(hanrsnr
tfrhccrpcric(c.f
L.fT.Tji',",
rne rv.t s wasrcncrk.Ll.
\uDjui (ounrrie\.in rc\pon\c1,,c\rcmlt jmhrl nccs.
would nccdonly ro (critiz€ rcscrvcinflows.while dcticir
counlrieswo[ld hc
forcedro iniriatemoncraryconrraction
ro prevcnr$e rteplerion
of rcsenes.Von_
erary_()nracron,
accordingro Kcynes.whoscvicwsheavityinfluenccdrhose
of
th€-Aririshdelegarion.
facitirared
a.tjushcnl by cau.;"g
ro fr",
vcnr uncmptoymcnt,
symmetryh{d (o be restorcdro the","lnpr,,y,n."t.
adjustmcnr
mecha;isDr
lhroughrhc infr'r[lor. i,n of \il|cooh compf,l,,r,g
surpru\crunlnei lo ruratue
Inerrcurrcncres
ur .r imuInre.temrn,t
23a
HegemonicstabilityIhcories ofrhe InrernatioralMonel v svrren
encewere not thccostsofasymmerriesrnd inndequ c liquidity. but rhc inslibil,ly
oi floating ralcs and fie disruplivc cffccts of exchargc rdc and trade prorccrion.
U.S. officials werc conccmed abour ensurinSorder and slabilily in $e forcign
exchrnge markcl and preventinglhc dclelopmenl ofprcfcrenlial lrading sy(ems
cultivatcdthrough exp€dicnLssuchas exchangcconlrol.
Thc Keynesand whitc plos. which lbnncd crch side s basistd negoriarjons.
requjrc only a bnef sunrnrary.Exchangecontrol Dd rhe cenrraUzcdprovisjon of
liquidrry ( bancor") wcrc rwo central clcnrcnrsol Kelnes s plan tbr an inrcma
tionalclcarinSunion. . . . Dxchrnlc conlrolwould insularepeg8cdcxchangcrarcs
from the suddenliquiddtion of shon-lcrm balances.Syrnrncrrywoutd be cnsurcd
try a chargeon crcdilor balanccshcld wilh the cleanng bank.
The White plan acknowlcdgedthe validily ofrhc Brilish conccm wirh Ijquidiry.
bul w.N intended1(l prelcnr borh inflarion and deflatioDr.rher lhan ro exen rn
expansionaryinfluence. It lilniLed tlrc StabilizatioDFund s rolat rcsourceslo $5
billion, comparcd$,i1hS26 billion under rhe Keyncsplan_ft was pancmcd on lhe
principlesof American bank lending. undcr which decisionmakinspower resrcd
ullimately wilh lhc b.lnkrthc Kcyncs plan resembledrhc Brirish overdrafi sysrem,
in which the olerdraft was ar rhe boriowcis disc.erion.Thc tundrmenral diifcr
ence,however. lvas thal lhc Whirc plnn limilcd rhe lolal U.S. obligrrion ro its 52
billbn conrribution, whilc thc Keynes plan Iinrired rhe vatuc of unrequiredU.S.
exponsftat mjght be llnanccd by bancor ro rhc loral dmwing righrs oforher coun,
r r i c s( $ 2 1 b i l l i o n ) .
It is typically aJgucdthat the Brelron Woods agrecmcmrettecled Amcrica s
dominanr posilion. presumablyon the grounds lhat lhc lnrcmarionat Monckry
Fund charterspccifiedquotasof $8.8 bil lion (closcr 10fie Whire plan s $S bi ion
than io lhe Keynes plan s 526 billtun) and a nuximum U.S. obtigalion of $2.75
billion (much ckrse. to $2 billion undcr rhe white plan rlrin lo $23 bi[ion under
the Keynes plan)- Ye1, relativc ro rh€ implicarions of simpte versionsof hegemonic slability theory, asurpnsinBnumberofBnrish prioririesq,ereincorporared.
One was the priority Brilain lllached ro exchanAcrrte ttexibitily. The Unjred
Stalesinitially had wished to invcst the iMF wirh vcro po*er over ! counu]._\
dec'iion to changcits exchangeratc. Subsequentlyil proposedlhat 80 pcrcentof
IMF membcrs be rcquired ro approve any cha gc in parily. Brr (hc Anicles of
Agrcemcntpermilied dcvaluationwilhout fund obiecrion whcn neededro elimi
nate lihdamental disequilibnunr.Lacking any definition of r})is remr. there wls
scopcfor devalualionby countriesorhcr rhanlhe Unired Sktes to reconcilc inter
nal and extemal bdlance.Only once did rhe fund lrcar an exchangerarc changeas
unauthorized.lfcountries hesilnlcdro d€laluc. $cy did so as nuch for domesric
reasonsasfor reasonsrelarcdto rhe struclurcofrhe inremaiionatnronelarysystcm.
Ano(hcr B.rlish pnority incorporatedinlo $c agreemenrwas rolcranceofexchangeconlrol. Originally, the whirc plan obliged incmbers ro abandon. tcx
changcrestrictionswirhin six months of ceasinghosliliries or joining $c tMF,
whichevercamc first. A subsequenlU.S. proposalwould have requjreda country
to eliminate all exchangeconlrols within a year ofjoining lhe fund. Bur Brirain
succeededin incorDoratincinro thc Articles of Alrccmcnr a distincrion bdwcen
239
conlrols for capitnl transactions,which wc.c pemriued, from controls on currcnt
t.ansactions.which q,crc not. ln practice.even nondiscriminatorycxchangccon
(rols on curcnr transactionswere somerimeslurhorizcd undcr IMF Anicle Vlll.
As a result of this conrpromisc.rhc Unitcd Srrresp.orecteditsell irom ellbns lo
divcn stcding bloc rradetoward thc British mrrker. while Britain prorecleditself
frorn dcst$ilizltion by overseassterlingbalanccs.
In comprrison with thescconcessions.Brirish cffons to restoresymnrerryto
thc intcmationalrdjushent mechnnismproved unrvailing. with abandonmenlol
tl|e ovcrdnfi pnnciple. the B.ilish embraccdWhrrc s scarc€currency proposal.
undcrwhich the fund wns empowcrcdto ration its pply ofa scarcecuncncyand
memberswere authorizcdlo impsc linrilarioDson trecdom oi cxchrngc opcra
lions in lhnl currcncy. Thus a counrry running paymenls surpluscssufficicntly
largc to thrcatenthc fund s rbiliry lo supply its cun.ncy might facereslricliuN on
lbrci8n cuslomers ability to purchascits expo(s. But the scarcccuncncy.lausc
had bccn drrlicd by rhe Uoired SraDsnol wirh lhc principle oisynnnerry in nind,
but in ordcr ro dcrl with prcbl.ns oi inxnedialc postwar ldjushcnl
spcciiic
ally. rhe trospcctive dollar shodage.Wilh rhc dcvclopmenl of the Marshall Plan.
thc dollar shonagc nelcr achicvcd thc scve.ily anlicipatedby rhc aurhorsof thc
scarcecunency clausc.and LhcDrovisionwns never invoked.
ll rhe "Joinr Strtemenr by gxpens on the Eslablishmcnlof an Inlemarional
Monetnry Fund. madc public in April I944. borc thc imprinr ofrhe U.S. delegnlaonto Bre(on Woods, to a su.prisingextent it also embodicd inrporrantelements
of the British ncgorirting position.It is c rious from rhc pe.spectiveofhegemonic
(ability thcory that r war brttcrcd cconomy*Brirain
he.rvily dcpcndcnlon the
dominant economic powcr-Amcrica
io. lapilal goods. financial capitnl. and
cxpon mrrkets was able lo extract signilicant conc€ssionsin the dcsign ol lhe
intcmational monelary \yslcm- Britlin was ably rcpresentedin fie ncgoliltions.
But cvcn mo.e imponanl. lhe Unilcd Statesrlso .cquarednn inrcmation{l lgrce
mcnt and wished lo secureit e!cn while ho(i1ilies in Europc prcvcnlcd cncmy
nations f.om taking pan in nclotiations and nrinirnized the involvcmcnt ol lhe
nllics on whosele.rilory Ihc warwas ioughl- The United Srateslhereforch lirllc
opponunily lo play offcoun(rics againstone anotheror to brand as rcncgadcsany
lhal dispuledlhe ad!isabili{y otits design As the Weslenrworld's sccondlargesr
economy. Britain symbolizcd.if it did nor rclunlly represcnl,thc other nationsol
the world and w.1snblc to rdvance their case morc cffcctivcly rhan ii rhey had
attemptcdmorr f,ctiv€ly to do so themsclvcs.
Whrt conclusionsregardingthc applicabilily of hegenronicstnbilhy rhcory rr)
fic gcnesisof inlernntion.rlmonch.y syslemslbllow from the cvidcncc of thesc
threecasesl In the lwo clcnrcn instlnces ofhegemony-lhe Unircd Kingdom in
thc secondhalfof the oinerecnthccnrury and rh€ United Stateslinlowing World
war ll lhe lendingcconomic power signilicantly infiuenccd thc fom of rhe in,
temalionalmonclary syslcm.by€xanlple in the lirst insllncc and by negorin(ionin
the second.But {he cvidcncc also underscorcsthc facr rhar rhc he8emonhrs been
incapablcofdicuting the fomr ofthe nronetarysysrcm.In the fiKl insrance,B.i1-
24O
HegemonicSl.bility Tfteorietofrhe InrematioEl Md.tary sFlcm
gold standardadoptedabroad.In the second,the except'onaldominanceof the
wirh olhcrcoun
U.S.economywasunableto eliminalelhe needto cornprornisc
tricsin lhe dcsignofthc monctarysystcm.
THE OPERATION OF MONETARY SYSTEMS
AND I'HE THEORY OF IIEGEMONIC STABII,ITY
I{ is necessary
1oconsidernoi only thegenesis
ol monelarysyslems.
bul alsohow
slabililyapplics10fte operalionofsuch sysrems.
I conrherheoryof hegemonic
sideradjustrnent.
Iiquidiry.andthc lcndcrol la\t rcsortfunclionin lum.
Adjustment
'n
Adjustmentundcrlhcchssicllgold standrdhasfrcq entlybecnch.iractcnzcd
slabililytheory.Thc Boldslandardis ponruycd
tennscompaliblewith heSemonic
as a managedsystemwhosepres€rvalion
and smoolhopcralionwcrc cnsurcd
pwer. Gre.l Rritllin.and ils rgcnt. lhc
throughils regulalionby a hegenronic
BankofEnsland....
Before1914,Lo.dor wasindispulcblytheworld s leadingtinancirlccnler.A
largeproponionofworld trade--{o percenlby oneeslirn.te wasselledrhrcu8h
paymcnlin sledingbills, with Londonlunclioningasa clcaringhousc
for imponers and exponersof orhernations.British discounrhousesbouShrbills from
of forcignbanks.Forcignabroad.eitherdircctlyor throughthc Londonagencics
in Londonro nreelcommitrnenls
on bills oulslsnding
and
ersmainlairedbalanc€s
o!erseas.
Foreigngovemmenrs
ioserviceBritishpo.tfolioinvestmenrs
.rndcenLral
banksheld deposilsin Londonas inleresteami.8 allemrlivcsto Boldrcsenes.
Although(hepoundwasnottheonly resenecunencyoflhe pre-I9l.1era.srerling
rescrvcs
matchcdlhecombincdvalucolrcscNcsdcnominalcd
in othcrcurencics
perbapsfl50 million of shon tenn capilal
At the samelime. Brilain possessed
ovcrseas.
I'houghir is unclcrJwhcthcrBritainwasa Dcrshon-lcrmdebtororcredilor beforethe war, il is cenainthal a largevolu'neof sho.l'termiundswasre
in dom€sricintcrestrates.
sponsive
lo changes
By
Soch.h.n8esin inte.estrares'nighrbp insri8.rcdby rheB.nk of tslneland
aheringtheratesat whichit discounted
lbr its cusromers
andrediscounred
forrhc
discounlbouses,
thebaokcouldalteclralesprc!ailingin thediscounlmarkelBu1
the €ffectoI Bankrntewasnol limiled ro rhebill narkcl. while in pan &is reflectedthe exceprional
integrationcharaclerisric
of Brilish financialmarkels.n
wasreinforced
by instilurionalization.ln
London,banksaulomatically
tlxedlheir
poinl aboveBant rate.Loan .alesweresimilarly
depositrateshalf a percentage
indcxcdto Bankr.rlcbul n(a highcrlcvcl.Thouehthcrcwerccxccplionsro (hcse
rules,changcs
in Bankratewereimmcdialelyreflectedin a broadrangcofBritish
241
An increasein Bank rate, by raisin8 the gencrallevet of Britjsh intere( raics,
induled forcign investorsk) accumulalcaddirionallunds jn London and lo delny
thc repariation or transierofcxisting balanccsto other ccntcrs.Brirish bnlances
,broad lvcrc repatrialed10crm rhe h ighcr rateof retum Drrwings ol tj nrncc bilts,
w h i c hr e p r e s e n t chdr l f o l l o t b i l l s i n 1 9 1 3 w
. c r cs i m i l a r t ys c n s i r i v teo c h . r n g cisn
inlcrcsl rat€s.HiShcr intereslraLcsspreadlo rhc securily rnarkct anctdelnycdlhc
floration of ne\r issueslbr ovcrseasbonowcrs. tn lhis way fie Bank ot Enstrnd
w.rsable lo ,nsularcils gold rescnc tionr disrurblnc€sin rhc cxrcmataccounts.. . .
But why did the Bank ol England s exccptionalleverrgc nor rhrcarcnconvcn,
ibility abrodl'Ihe answcr conunonly olfered is (hat Brirain s unrivlted markct
power lcd toa de Irck) harmonizarionoi nationrl poticies.. . _As Keyneswrotc jn
rbe Trcotiseott Mott^, "Du.ing fte latter ha ot rhe ninctccnthcentury thc inltucnce of London on credir condirionslh(trrghout rhc world wrs so prcdonrinanl
rhrl the Bank of England could {lmost havc clainred ro bc the conduc()r ol lhe
intcrnrlional orchest.a
Sincc fiscnl harmonizationrcquiresno discussionin an crJ of hatanccdbud
gcts,thc srabilityofthe classicalgoid srandardcan be €xptrincd hy thc dcsirc rnd
ability ofccnlral banksro harmonizelhei. nonetary poticiesin rhc inrcrestot ex
lcmal balancc.Exreroalbalancc.or mainLaininggold rcscNes adequltc t() defend
rhe eshblish.d gold pariry, was lhe forenxrsrlargcl ot monernr) policy in lhc penod precedingWorld war I. In rhe abscnccof a cohcrcnl lh€ory of uncmploymerr- much less a conscnsuson i(s rchtion ro monctary poljcy, thcrc wis rchtivcly lildc prcssuretor.cnhl b nks to:rccommodalcdomestic nccds. External
balancewrs not the solc largct of poljcy, but whcn in{crnal rnd ej(crnrl batrnce
crm€ into conflicr. the la[cr look preccdcnce.Viewcd frcnr an inrcmrrionrl peF
spccrive.Brirish lcadcrshipplaycd r rolc in ftis proccsso I hannonir.rti(nrinsolur
$ lhe markct powcr and pr(nninenceol Lhc Bank ol Engtond scrvcd as a lbcal
pornrlor policy coordinarion.
Bul ifthe Bank oi F:nelandcould be surc ofdefealing irs Europcnncounre.parrs
whcn lhey engagcdin a rug oiwrrovershoa rcrm capitat,rncreharrroni/rlion of
ccnlralbrnk poUcies.iD rbe ficc of extemal distu.banccs,re'td hrvc bccn in t,
llcicnt to prL'vcnrconveftibiliry criseson rhc Conrincnr.The explnn.rtionfor thc
abscnccof such criscs would lppcxr to be the grcarcr nrarkcrpower oi ELrropcnn
countri€scomparedwith thcir non-tsuropcancounterprns. Sonreohscrvershave
distinguishedlhe m.rkct powcrofcatirat expofling countricsfron rhe inabiliry oi
capital jmponcrs h influencc the direction of financi.rt flows Othcrs h!!c \ug,
gestedthe exisrcnceof a hierarchicalstructurc of tjn.rncial markets: bctow rhe
Londonmarkcr werc thc lcss acrivemarkctsofBerlin, Prns, Vicnna, Anrsterdnm,
Brussels,Zurich, and Nctr York. follow€d by the srjll tessacrivc marketsof thc
Scandinaviancount.ics. rnd linally lhc nrs.eni markcts of Ln(in Amcrica and
other parrs of the non Europeanworld_ When Bank .ae was rniscd in London,
thus.edisrributingreservesto Brilain liom other regions.compens. (,ry discount
rateincrcaseson thc Continenl drcw lunds hom thc non-Europcrnwortd or cur
lailedcapitaloutflows. Dcvelopingcounries. due to cirhcr thc lhinncssofma.kets
or lbc rbsence of rclcvanl instirurions.we.e unrble ro prevent rhcse events. tn
242
H€adni.
sr.bililY lh€on6
.f th. hlh.rioEl
M6€bry
sFl.m
limes ofcrisis. lhcrcforc. conyenibility w:ls th.ealenedprimnrily outsideEu.op€
Amcnc.r. . . .
and No
l hus. insof r a$hctsc'rNtryplaycd $mc rdc in the effi cicncy of rhc adjustmcnl
mechanknr.il w$ nol lhc British hcgcnt)ny of which so much has bccn wntlen
but thc collective hegcnronyofthe Europcanccnlcr rclative to tbe non'Europcan
pcriphcry.Nolonly docslhiscasechatlcngclhc conccptionoflhc hegemon.rhere
lbrc. bur bec,)usclhc slabihy of thc classicil Sold \landrrd was cnjoyed exclu'
sivcly hy thc counaics oflhe cenler. it suffnns only lhc wcal forni ofhcg€monic
surbilitythcory lhul lhc bcncfitsofsl.bilily accruedexclusivcly to thc powcdul.
The rclatbn bctwccn hcgemonicpowcr.rnd lhe needfor policv harmonization
is cqually rel€vttnlto lhe cascof lhc inlc ar Sold exchangenrndard Onc interprctation. . . is thal in lhe.rbsenceofll hcgenlonthere was no lir.ll point for pol_
icy. which inr€rfcredwith eftons at coordnralion Bul morc imponmt than a de'
clinins abiliry lo haflnDnizepolicies mny h.i!c bccn a dimini\hcd desirero do 5o
AllhouSh thc advcnl of cxplicn sbbilialion F)licy wns nol lo ccur unlil the
1930sand I940s. during tbe 1920scenlral bntrksplaced increasingweight on inlcmalconditions whcn lbrnrulating monclary policy.Thcrisc ol tocialism andlhc
cxamplc of rhc Bolthcvik relolulion in p!flicular provided a countcrweightto
ccnlral bankcrs irstinctilc wish lo basepolicy xolely on cxtcmal condilions Ex'
rcmal adjustmcnlwas rtndered difficuh by poli€ymJkcrs incrc.'singhesnancvlo
$crilicc orher objcctivcs on the alkr ol c](tcmal balance.Brjlnin s balance'ofpiynenrs problenrs,for cxample. cannol bc rllributcd ro lhc cxistcnceof more
thanone policy'in (hc world cconomy wilhout considcrinS.rlso.r domcsdcunemploynrcntproblem th.rl pl.rccdprcssurcon lhc Bank ofEngland to rcsistrcstrictivc
nrasures thrr nliAhl slrcnSlhcnthc cxtcmrl accounlsal lhc cxpenscof industry
Undcr Bre(on Woods. thc problen ol adjustmentwas circcrbalcd bv the difticulry of rsing exchangerale changcsl(i restorccxlcmll balancc Hesitancyto
chxnge rhcir exchrnge rules posed fcw prohlcms for coumrics in surplus Howcvcr, thosein det-icith d lochoose bctwccn aggravaling$ncnrpft)ymcnland toleF
ating extemal dclicilsr thc latrcr was inlcasiblc in lhe long run rnd promoled an
in€rensein the volumc of shon lcrm crpilal lhll movcd in responscto antic'pa'
tions ofdcvalu.uion. Allhoulh the IMFcha erdid notencourrgc devaluation thc
hesitancy of dcficil countries lo cmploy this option is casicr lo ascrib€ lo the
ltovemmenrs tcnden!_ylo aluch their prcsligc 10 the stabilily oI establishedex_
changcrateslhan to U.S- hcgetnony.howclcrdefined whcrc the singulf mle of
thc UnilcdStalcs w.$ irnponantwai in prccluding a dollar dcvalu.tlion.A pssiblc
K)lution to lhc problcn ofU.S. deficils. onc lhal would oot hrvc lhreatenedother
counlries' ability lo lccumularc rcscrvcs.was an incrcasc in lhc dollar price of
gold. that is. a dollrr devalurlion. 11is runeiincs argued lhnl thc ljniled Slales
was incapablcof adiusrinethrough exch.rngcr.rrcchangessincc olher countries
would hrvc devalucd in rcsponseto prevcnl any changein bihteral mtes against
lhc dolld. Howcver. raisine lhe dolltrr pricc of sold would hnve incr€asedthe
dollarvalue ofmonclary gold. rcducinglhc global cxcessdcmandfor res€rvesand
cncouraginSothcr countncs to incrcascdomc(ic dcmand and cut bftk on their
243
balane{f paym€ntssurptuses.Bul while
a rise in lhe pricc of gotd miShr have
allerialed ccnlral banks immediarc dcpendencc
on do nrs. it woul.t havc done
p'o'""."i*r"
:fff:l]ffi:t:tl::l:H]l;'l'""":Tff:
llr*ll"r*r'"""
encourasins
o,hcr
counrri".
dateof fulr!rc difficuhics.
*-?T:1n1.:.\,:o:::
. ,""""*,n",.1"",1'"1'il1:j:J,.':,f
$i",";jllJ:i:
- djusrmcnrsuppon
hegcmonic
rhcorics
of inrcmarionar
;:i:,:'3;:i:lill
IffiTll#"';ff
l,tHilnTil?
m:ml*lflllll;
Ihe rnrerwarycarssuggests
thara donrinanrpower,spoticiessc.r'€d!s I
lix€d
ffi:tiixil:nr
i":.1'lllul"1Jti'$i"Ti";,;,lll
on the samcnance.Thc arg",n""r. . _
ii rt,i
srgnar
rrc.rrre.
pray"rs,rrl;;;;;;;;,h;
#:,;h"il:'"lll'.t"H$::li::."::
oflhc.adjushcnr
mcchanism
undcrrhe1woregjme,
*,1"rrAr;it.f,
Amencanmirrketpowerbut atsr rheexisrcnccof "n*,"A
""l
a" i""-*i.""f
,,"
rheobjecrircsrnd fo|mutation
"""*""r.
ol nronctrrvool
c,e.,o
bchn,moniTed
r,";",;;;;;;;;.:;;
iiiill,:iT:,f,1;Tfl,itf"il:
Statcsafier t91.1wasnorso muchro forceorher.oun(ncs
r()allerrheirpolicicsas
to pro!rdcI fujalpoinr tbrpoticyharmonizalion.
Liquidity
Undcrrhc (ta\\ical gotd rllnLhrd.
pnncir
rhc
mined
rr,\hari,o
\e.il;;,;; #;l;:;'#:il"*l':::lH"fti,t::l:
so,,,
havemuch influcncedlhechanscsin rhe world
upon
sh,ch,hc.c
supprie.
.";;r;l ;; -*:J',il'"""i';ll,H'J,ilU:,'HJ
;';rti'tiii:;"i,:l:
i':;:.:::
:*illr:r,!*l:,1*l:
f:I""j*I;i
1:1",::"*t-ill:
ftercforc.ftar in rheabsencc
of B;irishr,"g".-""y
and
",.""*"
the
**ra i","",,iri,
sora
i::X5;::i1,1il:l:-ropcd crassicar
""',a*a
Lrqurd y w.r\ rn i\\uc ol
morcc.,nccm undc
adb"r*
r
s
r
s,ndr
""n
"ii ;;:;,;:;:ffi :fi flJ,: :#lfffil:::ll
;'#.-J:t'.i:tillHT;i:
il;::i:il::;:t":#:,::;il'H
il:,i,,:,,il;
underasy,srcm
okonvcnibl€ cu.rencies,
worldmoneysupply*asconstrairied
hl
Iheavailabiliryof reserves.
S rarubryresrricrions
requrrcdccnlrulbanksto ba!k
|nelrmoncysupplieswilh etigibtercscrvcs.
whilc reccnlcxpericnccwilh innation
deleFeLl
polirr(rn\tromtihcrutr,,rn!
rhc\rature\.
Th" *,pr,.f **fy.i"J
g.fj
bc8inn,ns
orwo,rdw* r.*,r *p.n.
:,T,T*.:-TIl"r..,:*,hc
"n"*l.n",l
rurutesupptic\.
Increa\nsrhr rcit valrjcoi wortdgotj rc_
uaa,.
ri"a-iii.
ff::'i"lT':flf"'i:::1;1'T..::il
r::*'i*nuroonrv
244
HeSemonicSr.biliryTheoricsof lhe Inlcrnatioml Moncta.ysFten
thcrclirc, lo stabilizeon a Eold e,(changcblsis lo prcvent lhe dcvelopmcntofr
gold shonaBe.
Thcre are difficulies aalh lhis cxplrnarion of intcs'lr liquidaly prcblenr\.
which cmpharircs a shonage of gold. li)r onc. lhe danger of a gold shortrSes
constraininglhe volume of trans.rctn)ns\ras .rllcvialed by the all but completc
wirhdrawalofgold coin from circulrtion durinS rhe sar' As a resull. fic pcrcent'
a8c ot shon-lem liabilities ofall ccnrral bnnksbackedby gold was littlc difltrenr
in 1928 from its lelel in l9ll, whilc lhc volumc of lh€ liabilitics bnckedby fiai
gold srock wa\ consideftbly increascd.Il i\ h,lrd ro sec why I Sold shorlagc after
ha!ing exhibitcd only weak cftccis in prcvir)usycr6. should have h.d sucha dra'
mrtic inrpactsbning in 1929.h is clcn lcss clcrr how lhc lbsence of ! hcgemon
conlribulcd 10 ihc I'urponed gold shonrSc. Thc obvious linkagesb€twecn hegenn)ny tmd llrc provision ofliquidily work in thc wrong dircclion. Thc slrrightfoF
wrrd way of increasingrhc monetary valuc ol rcscrveswas n round of cuncncy
dcv!lualion. which would revaluc gold rcscrlcs and. by rdising the rcal pnce ol
8old, incrcascrhc ourpurof rhc mining industry. As dcmonsimledin I931. whcn
the pound s deprecialionset offa round ofcomPclilive dcvalualionx.slcrling renraincdthc linchpin oflhe inlcmalionrlcurrcncy sysrenr:fic only way a round of
currcncy dcvalualioncould havc lalcn plncc. thcrcforc. was if Bnlain had stabi_
Iir'cd in 1925rt n bwcrlevel. But hxd her domin.rnccot thc inlemalionrl cconomy
nor c(xlcd ovcr the firsr quanerollhc lwcnlielh ccnlury. the pohicalprcss rcon
Ilrilain lo rctum to gold at thc prcwrr parily would halc increis.d.athcr than
bcing rcduced.h scemsunlikely. thcrcfore.thal a more successfulmainrenanceof
urilish hegcmony.ceterisparibus,would hovc rlleviarcd any gold shonage
An altemalive and morc appc.rlinge)(plan.rlionfor inlerwar liquidily problems
cmphasizesmismanagemenlof gokl rc$rvcs rirhcr ftan lheir overall insuffi'
ciency. lt blanresFrrnce and thc Unilcd Sl.tcs f()r absorbina disproponionat€
shr.cs of slobal gold supplicsand li)r irnposin8dcflalion on the resroflhc world
Bclwccn lt)28 md 1932. French gold rcservcsrorc from $1 25 billion ro $3 26
billtun of conslanrgold conrenl.or f(rn I I b 211pcrccnl of thc world lolal. Mcnn_
whilc, the Uniled Stats. which hrd rclcnscdSold hclween 1924and 1928.f&iliraringthc rceslablirlhmcnlotconvenibilily in othcrcounlries.revcrscdil\ posilion
. t n d i m p o n c d $ l . 4 g b i l l i o n oS
f o l d b c l w c c nl 9 2 l l n n d 1 9 1 0 .B y $ c e n d o f I 9 3 2 t h e
Unitcd Statcsnnd F aoceloSclhcrpo:tscrscdocarly 6l pcrcenlofthe world s c€ntral monelarygold- - . .
Th. m.ldistriburioDofre..rvcs.a. t!'rn,l.r{l,nd hy fmr\ing on the slstem'
alic interacrionofcentmlbrnks. This approachbuilds on the literaturethat charac'
tcrizcsrhe intcrwar gold slandardasa comPclitivestrugglefor Sold bclweencoun'
trics that vi€wed thc sizeofthcir Sold rcscrvcastr measureof nalional PresliScand
as insuranceagain( financial instabilily. Franceand the United Statesin panicu'
lar, but gold standardcountries gcncrally, repc.rtcdlyraised their discountrares
rclalive 10 one anotherin cflbns to allracl gold from abroad.By leading to lhe
accumulaion of excessrcserles, lhcsc rcstricli!c policies exacerbatedlhe ProtF
lem of inadcquateI'quidily. but by offsctting one rnother they,rlso fail€d lo
Thcori_Finr
ot thr.(,{npetirivc
\truBgtc
forFoldarcpoput.rly
rrtrihurcrl1,,
thc
,
xD\cn.eot
r hegemon.
Thccorn[1cting
p ri\.rnJ Nc$
financratcenteA_
London.
r.rx- $oa\cd3t crr,r\_purF\ci
hc(rusc.in Lontra\r
ro rheprccedinB
pcriotl.
no
oners-r.al bmk ws sutficienrtypowcrfi,tro ca thc rune.Beforc
;; war. rhc
Bankof Englandhadb€ensufficicnrtydominamro ad asa lc..ler,
seningirsdis
countrntewi& the rcacrionof orherc..rrratbanksin mind, while
orhe;ccnrral
rn rhe mrnd of a clmpcrrfirc rnnsc 8y u\rns rhrs
llllr,':'rJo"Y:o
lx,wc, ro
'rclend
lhe Foldpnriryot \lcrtingdc\pircrhcmJinrcn:rnce
ofstend;rrA;rves.rh(
thc derct,rpm.nt(,t 3 (onrptlitrvcscramhtet^r gotrt.lJut
at.rcr
wo!r(,wr L q rthrhr'UnrtcdSlxrc\un$ilt,ngrorcceprrerpon\ihrtrty
for tc:(tc!snrp.no onc cenlmlhanl formutatcLj
ir\ moncrrn puticywirh to,Lign,cr(.r,ons
andghbal condilionsin ,nind.andrhenoncoopcrarive
srrugglefor 8otdwasrhc
rcsulr.In rhis inrerprcrarion
ot thc intcrwartiquidily probt;m. h"g;.."y_;
morepreciscty,its absencc_plays
a crilicatrore.
In di\cussing
thc pruvi\iont,l hquidrry
undcrBreflonWoods.ir i\ (riricilllo
.
0|\lrnBursh
rhedec.dccndinS
in 1958_whcnrheconvcrlrbitirvof
Fur.tcuLuF
rcncieswas re(ored and bcforeU.S.dominance
of intemation"rtrrae, f,,.cig"
lendins.andindusrriar
producrion
wasunrivatcd rromrneaccaaerlar rottowij.
In thefirst pcriod,the mosrimponanrsourceof incrcmenlal
tiquidirywrs doli;;
rc{^A. B(lwccn tg.{irJnJ t,r58.shcn ptobrt reserve.rose
by 29 percctrt.te\s
rnrnonc third ol rhc incrcmcntk,ot thc torm of gotd and one.fifteenth
wxs in
qmls\ Jr.rheIMF Thc rotc.,f \rcrt,ngn\ I re\cNecunenc'
war trmrledrtnrosr
crcrusrcr' l,' ( omm,rnw.Jhhmcmhcr\rnd fomcr Brirrrhcotoni(\
lhathndtra_
dition.llyhcldresencsin L)ndonandrradcdh€avilywirh Brihin.
Consequcnlty.
rhcaccumularion
ofdolar balnnccs
nccounred
for roughtyhatfof incrcncnratti,
quidiryin thefirsrdecadeof BrclronWoods.
In onescnse,U.S.dominrnccot intcmationrtmarketsfacitjlated
thc pmvision
ofliquidily.Ar rheendof WortdWar II, rhcUnircdSrates
hadamGsed60 pcrcc;r
oflhc wodd's goldstockii|t $3j an ounce,thiswaswonh sx
limesthc valucot.
0rolficialdoll0rLlximj
xccumutarcil
by forciSn
porcmmcnr\
b) te4e.t-hcnj
wJ\
||||lcrmmed'rre
qu.srion.
trven( .S.d,,minanle
ot gtobatgotdrc\ervc\,r,f (hc
nabiliryot rhegold pnceof rhedollarand hen€etirrtehesihrion
to accumutalc
Incremenlal
liquidi(yin ftc ti'rm otdoltarctaims.Bul in nnorhersensc.
U.S.inicrin rhcimncdi rc po.rslrycs impeded
rhe\uppry,jf
liilil:l::11-"
T"nqurdityto lnc $orlij econom! WJnimr,d!\rrucrronof rnausrry
ln eun,pcan.t
Jdpan
lcfr U.S mrnutJ(trrrc.t
.rton{ hiShlyc,,mp€r,trvc,n
sortd ftrrt.h lrd
enocredLuroB'Jependcnlon U.S capihl
Aood\for indusrrialrc(onstnr(lion.
In. persr\renr
c\ce\s demJndfor U.S goodstcnde,lri, pu\h the I r.S.hrtrncc
of
prymcnlsjnlo surplus.crc inS rhc flmous ..doltarshonage.,
of the immediatc
posrwa'yerrs.white U.S.heg(monylcft orhercounrne\
$i rng lo h,,U dothr
crarm\.
'l rcndered
rhemcxrrcmcty
drtficulr
lu !,brain_
Variu{\ t'olicres$erc inirr cLtin rc\ponrero lhcdo aj shonrge.
rnLtuding
drs.
^_
cnmrnalon
a8arnsldothr arcJe(f'on\. spccintinccntives
fnr turopeanandJrpan_
€l€erportsro rhc UniredSorcs,and! roundof Europ""n.u,,"n.y
,t""ururti,,n.
n a n t n s i a S c D t e m h e rt g : l q I ' l i i m i ' r t w r h . c ^ t , i
246
247
HeBMoni. sbbilily lheorics oI lhe t nttm.lion.l Mmei.ry SFI€m
contrastinBactionsby the he8c'non:Mrrshall Pl!n gnnts of $ | l 6 billioo b€lweet
rnid-19,18and mid 1952, and Korenn War expendilurcs.l-argcly r-s l result of
t h c \ c ( w o l & l o r s . U . S .l r i K l cs u r f t l u s cssh r a n kt r o m 5 1 0 . 1b i l l i o n i n l 9 a 7 l o $ 2 . 6
biUtun in I952: more nnponant, tl-S. golcmntnl grants and privale capital out'
Ilows cxcccdcd thc srrplus on currcnr :rccount.By l95O rhc U.S. balnnceof paynrenrssas in deticil and, rttcr nxrving hmk inlo surplus in l95l 52. dcficirs rcrumcd ro sla)'. ln$tnr ns its sinSular economic power encouaged the United
Stntcsro undcnakc hoth rhc Mrrsh.rll Planand thc Korcan war. hcgcmonyphyed
r sianificanl rolc in tx)lh lhc lbnn rnd adcqu.rcyof thc liquidiry prolidcd in thc
lirst ilccadc of Brcllon Woods.
Rctwccn 1958 and 1969, globrl rcscrvcsgre{ more rapidly, by 5l pcrcent.
thrn Lhcyhad in lhc first dccadcol llrcuon Woods. Again, gold was a minorsharc
oi rhe incrcnrcnt,rhour onc-rwontierh.tltrd IMF quoras lverc onc-cighth. Whilc
li'rcisn crchangc reservesag.rinprovidcd roughly hrli F:urodollarsnnd othcrlbrcign curcncics Srcw in impondnco: lhcir.onLribulion rctually exccedcijlhal of
official clnims on lhc Unilcd Slalcs.In pan theserrendsrellcctcd rapid growrh in
Europc and Japan-Morc im podlnl, lhcy rcllccled rhc iacl thrt starting in I 965 the
value of foreien Eovernm€rl claims on lhe Uniled StatesexceededU.S. gold reserves.Prudencedictatcd lhat tbrcign golcmmenl\ diversify their resc^c posrThe role ofU.S. hcrcmony in rh€ provision otliquidity during this seconddecadc has been much debatcd.Thc g(,wth ol liquiditv reflecredboth supply and
demandpressurcr:both ijcrnn ds h) othcrcountriestor additn)nalresenes, which
tntndaled inlo bal.rncc-of-pynrcnrs surplus€s.a'd lhe capaciry of the Unibd
Slatcsto consumcmorc lhan it produccdby runningbalance of-paymentsdeficils
fin,rnccdby the wilhrSness ofotlrcr countrist to accumularedolhr rcscftes.Thc
tJnited Sratesw scrilicircri shirrply. r.rinly by rhc Frcnch.forcxponins inllation
,rndlbr fi ancing purchascsol lirrsign compnnicsand pursuil of thc Victnam War
lhrough the balanceol payrrcnli. Allhough lhesecomplainlscannolbc dismissed,
it is inconccl lo conchrdethrt the doll,ris \inguhr posirion in the Rrcuoo Woods
systcm[,ednilled lhc trrrilcd Slrtcs ro run wh:rrcvcrbnlanccot paymentsdeficir it
wished. Moreover. il is dillicull to cnvi\agc an allemative scenarioin which the
U.S. balanceof paymcnls wns zero bul rhc world wls not stned of liquidjty.
Owing lo the sheer sizc ol the American economy, ncw chims on the United
Statescontinucd to exceed v:rstly thc con(ribution of nes claims on rny orher
nalion. Moreovcr. U.S. ccononric.military. rnd diphnutic influencedid muchlo
encourageif not compcl othcr counrrics ro maintain their holdings of dollar
clnims. Thus U.S. domnrrnccofinrcml]riur.rl markeN playcd a criticrl rolc in resolvingthe liquidiry crisis ol the I960sThc dislinguishjngfcalurc of Brcuon Woodr is nor lhat othcrcountricsconljn.
ucd 1ohold dolle reseNesin fic f{cc ol crch.rngerate unceaaintyand cconomic
growth abroad.for ncificr dct'cli)pmcnt has dctcFcd rhem from holdinS dollars
undcr thc flexible cxchangcr.rlc rcginrlj of the 1970sand I980s. Rathcr.i( is that
lhcy continued1()hold dollur rcscrvesin thc facc of a one *ay bet resultingfmm
dollar convcnibilily it a lixcd pricc whcn the dollar price ot sold sccmcdDoised
to rise-In pan,thcimpotunceofAmericanforeigninvesrments
andrhesizcofthc
U.S.narket for European
exponscausedothcrcountries10h€silarcbcforccashing in rhei.chipsYel forci8ngovcmmcnts
alsosawdollarconvenibilityascsscntial to the defeoseoflhe Solddollarsystcmandviewedthc fixedcxchangeftrlcs
ofdat systcmas an jntcm tuml publicg(x)dwonhy ofdefense.Nor unlil 1965
did the Frenchgolemmcntdccidcro convcninlo gold somcS3Ui nrillioDof ils
dollarholdiresandsubscquenrly
to stcpup its monthlygold purchases
frum lhc
UnitedStates.But whcn prcssure
on U.S.gold resewesrnounrcdtollowinglhc
1967devalua(ion
ofsreding.othe.countries.
includingFrlncc,soldgold insrcad
ofcapitalizingon t}lconeway bet.ThcyjoinedtheUnilcdSrdesin lhe formrrion
ofa goldpoolwhoscpurpos€
wasto scll I sulncien!quanlityo[gold to delcndrhc
officialprice.Betwccnstcrlings dcv.rl[ationiD 196?,nd closu.eol thegold n).r&eton March15.1968.thepoolsold$3 billionof sold,of whichtl.S.sAlos
were
$2.2billion.Francepurchased
no gold in 1967or 1968.p.csumably
ducin parl()
loreiSnprcssure.
U-S-levcragcundoubtedly
conrribured
ro theird€cisk)ns.
Bur i)
plau\ibleinterpretation
of thcseevcnrsis rhat foreigngovemmcnts.
ratherrhan
simplyb€ingcoerccdinto supportof rhc dollar by U.S.cconomi€power.wcrc
willine ro t*e limited stepslo dclendrhc inlcmationalpublicgoodot a fixcd
exchange
rarcsyslemdefinedin tcrmsofthc dollffprice ofgold.
what docsthir discussion
imply tor thc rolc ofheSemonyin thc provisionot
inlcmational
liquidiry'lThenrong€stcvidencefor rhcinponanceofahcgcmonis
negalave
elidencef.om the inlcrw.rryears,whcnrhc absence
of a hegcmonlnd
lhc tailureof cornpcringfinancialccrlcrsto coordinarcrhcirpolicieseffec(ivcly
conlribuledgrearlyro the liquidityshonaSe.
ln orherpcriods,whena domin nr
cconomicpowerwaspresent.
it is ditlicultlo credrtthalpowerwilhsolercsponsibility torensuringthe,rdcquale
provisbnofliquidily.Undcrlhcgoldslanda.d.
thc
pnncipalsourceol incrcmental
liquiditywasnewlyminedgoldi Britain.onlributedto thc provisionof Iiquidityonly insol-ar
as irs linancialstrrurccncouragcd
othcr counr.iesto a 8mcnl rhcir spccicholdinSswith sLcdingrescrves.Allcr
WorldWarll. U.S.economicpowcrsimilarlyrcndcreddollarsadesirablcformin
whichto acquare
liqrid reserves.
hut thc s{mefactorsfiar mrdedollarsdcsirahlc
alsorendered
Ihemdifficulttoobrain.
The Lender of l,ast R€sort
lfadjustmenlwcrealwaysaccorrplished
[email protected]
adequate.
therewouldbc no ncedlbr !n intemational
lendcrof lasrresorllo (abilizc the intemationalmonetaryrystem-Yet countriescapaciryto adjuirandrhc
syslem'sabilily to prcvidcliquidily may be inadequa(c
ro rccommodarc
disluF
bancesto confidence.
Likc domesricbankingsyslems,an intemarional
financial
syslembasedon coovedibililyis vulnen$le lo prcblemsof confidcnccrlut
threalento ignit€ spcculativc.uns.Likc dcpositorswho rushto closelhcir ccounlsuponrcceivingrhc ncwsof .r ncighboringbankfailure,cxchange'iarkc(
panicipanls,
uponhceinSol a convcrtibilitycrisisabroad,'nay rushro liquidrrc
H€g.moni. stabilityTh€orie of lhe lnl.rnational MonctarysFtem
their lbreign exchansebalanccsbccauscolincornplere informarionaboul lhe Iia'
bilirics and inrcnrions ol particular govemnents. This analogy leads Charlcs
Kindlebergcr.for cxample.lo adopt lom the domesticcentral bankina litcralure
lhc nolion fiar a lcndcr of Insl .esofl is neededto discounl in tinrs ofcrisis. pro
vide countercyclicaliong temr lending, and nuinlain !n opcn markcr for distest
goods. and 1o sug8esrrhat. in thc abscnccoI a supranalionalinstilution. only a
powerc.rn carryout this inlemrtionll lcndc.of last rcson fundion on
he-aemonic
Ol the cpisodcs considcrcd hcrc. lhc c.trly Brerlon Woods cra provides rhe
!lcarcsl illustra(ion of ftc bencfits of an inlemalional lender of lasr reson. The
lrrSc amounl of crcdil providcd Europein the fomr of lranls nnd long'term loans
and rhe willingnessof the Unired Slateslo acceptEurop.an and Japaneseexpo.ls
even when theschaLIbecn prcmorcd by rhc cx(cnstunof spccial inccnlives illustrate lwo of lhe lcndcr of las{ rcson funclions idcntificd by Kjndleberger:coonrercyclicallendinSrnd provision ofan opcn rnarketfor dislressgoods. Many historics ofrhc Marshall Plan charad'rrizc ir in rcrms consistcntwith *lc bcncvolcnr
str.nd of hcgcmonic sLrbilily tlcory: fic Unilcd Sktes was mainly interesledin
Europeanprospc.ily and sroodro benefil only insofrrrs thar prospcritypromoicd
gcopoliticnl slabilily. Rcvisionist histoncs htive more jD conmon wilh tbe co€rci!c sLrandoihegcmonic slabiliry theory:they suggeslrharlhe Uniled Statesused
Marshallaid toexacl concessionsfromEuroDejn the form ofnrosl-tavor€d-nalion
sralusforGcrmany,IMF cxchangcmlc ovcrsight,and Swiss links with lhc Organization lbr EuroDeanEconomic CooDeration.while il is ce(ain thal rhe Euro
pcancountricscould nol havc mo!cdso.tuickly ro rclax capitalcontrolsand qoanritative tradereslrictionswithoul thesefomrs ofU.S. assistance,it is no( €learhow
ir rhc arsumcnt can bc scneralized.Thc MaNhall PIan coincided whh a very
spccialcra in thc history oflhc intemalional monelary system,in which convertibility outsidethe United Slaleshad not ycl been reslored.Hence the.e was lillle
rclc ft)r thc ccntral function oilhc lendcrol last rcson: disco nling liccly when a
convenibiliry crisis threalens.W}en convenibiljly wai threnrenedin thc 1960s,
rescucopcrrtions wcrc mountcdnot by thc Unilcd Sutcs bul coopcritivcly by thc
G r o u po f T e n .
Kindlcbcrscr hrs {sued thnt thc 1929 ll financial crisis mighr h.rvc bcen
rvoided by the intert,enlionofrn intcmationallcndcr oflasl rcsod- The unwillingncssofBritain and thc Unircd Shtcs to cngagcin countercyclicallong-lerm lend
ing and lo providc an open market fordistress goods surcly cxaccrbrtcd convcn
ibility c.iscs in thc non Eu.opcd wodd. aoth thc curlailmenl ofolcrscas lcnd'n8
and the imposition of reslrictivelrade policies contributedgreatly to the balanceof-paymentsdiflicullies lhnl led to the suspensionof convenibilily by primary
produccrsas carly as 1929.Cold movcrncntsfrom thc periphcry to London ard
New York in I 930 heightcnedthe problcm and haslencdiis sprcadto Ccntral EuBul it is nor ob\,iousthal addidonal U.S. loans ro Brihio and orhcr Europcan
countriesa(empting lC)fend offrhreals to convenibiliry would hale succeededin
allering significanlly the courseof the I 93 I financial crisis-Headingoff the crisis
249
would have requireda successfutdcfenseofrhe pound src.ling, whosc.lcprccir
tion was followcd alnrosr imnrediarcly by pu.posefutdevaluation in somc Lwo
dozen oficr counrics. Brirain did succccdin obraining a subsianliatamo[nl otshonrcm oedir ab.oad in suppon of fte pound. raising $650 mj ioD in Ncw
York and Paris atlcr only minimat detay. Tolat shorr-tcm leodins ro counkjcs
u n i l c ' p r e r \ u ' c r n r o u n r c dr o r p p r t ' m d r L , t $y t b r i , , n .o r r u u 8 h r ) l 0 p { n c n r u l
total intcmational shon-term indeb(edness
and 5 percenloi wo.ld imDons (rnore
lhan rhe rario of lotal IMF quotas ro wodd imports in the mid 1970s).Ir is note
wonhy lhar ficse credits wcre obhined nor fiom a domirant power bul frcm a
coalilion ol creditorcountrics.
Could additional shon-rermcredils from an inremationlt lender of trsr resort
havc prcvented Brirain s suspensionot convcrlibitiry? tf the run on stcrlinArc_
n e c t e d m c r e l a) r c m p o r a r )I t ' : . o f L o n t i J e n c e , n r h c \ r u b r t , r ] ,r ,i f\ e d n J r i r i c . , r h r n
addilaonalkransfrom an inrcmationallcnderoflasr reson-tike cenrralbank ioans
to temporarily illiqoid banks might have permiucd the crisis ro be surmounted.
Bul if the loss olconfidcncc had I basisin economic fundament.rls.no amounrot.
shonrerm lending would havc done mo.c rhan detay rhe crjsis in the abscnccof
measurcstoeliminarc |he undcrlyingimbalance.thc existenccoi an inlem^rional
lcnderof lasr .esorrcould have aiiected rhc li'ning bur nol th€ iacr ofcollapse.
The fundamentaldisequjlibri unr iha( undermincdconfidenccin sleriins is tvo_
rrlly.oushrrnrhep,*ernrncn'hudrer.'lhcarrum.nrisrhnrh),'i,nulJiinE;;_
sorpuon. B.itain s budget dcficit, in conjuncrionwith the co apscof lbrcisn dem J n d l o r B ' i l i . h e \ n , { r . . w c l t c n e d r h e h r l n c e n r r r u u c .A I r h t , u r hr h c i . r o n d
L J h o u rB o \ c m m e n t, c l l I n l o l t p r e c , . c t )h c ( . u s cu l i t \ t . , t u r <r , , ; f r e c , , n n r e r
sureslo rcducethc siz€ of thc budeetdcficir. historiansdisagreeover whcrherrhc
budgetconrriburcdsiSnittcanllyto the balance-of-payments
deficit. Th€ lradc bal_
ance,after all. was only one componenrofrhe bata.ceotpaynents. The effecron
Ihe balmcc ofpaymcnts of shocks1l)thc tradebalanccapDearsr(, havc becnsmalt
comparedlvhh the Bank ofEngtand's capacityro lttract shon Grm capitxt Iflhis
rsconccl and thc l93l linancial cnsis in Brirain rcflecredmainlv a t€mDorarvloss
o f ( o n t r J c n ( ci n : r e r l i n pr J h e r r h x nr t u n d J m c n r ddt, \ c q u i t i h i r u mr.h c ; r d J r ; i , , n . , 1
sho(1erm lorns from the Uniled Shtes or a eroLrpot credito. counrriesmighl
hrve succecdcdin ridinS B.ilain ovcrrhecrisjs. Burlhe kransrequiredwould havc
b e e nc x t r e m e l yl r r g e b y l h e y a n d a r d so f c i r h e rt h e p r c l 9 t 4 p e n o d o i B r i t i s h h e
gemonyorthe posl-1944period ol U.S. doninatrcc.
Thc int€madonalleDde.o[ la(r-r.sofl ar8umenri\ moreditficut! tolpply rothe
clrssicllgold smndard.. . . In 1873,as in t890 and 1907,the hcgemonicmonerary
authority. rhc Eank of England, would havc been lhe..borower of t$r.eson..
rather than the lendcr. lThis factl might be reconciled wirh rhe rheory of hescm n n r c\ t J b r l r t ryt l h c l c n d e r . P J r i s . h e t e \ a r ( d r o r h ( v a r uosnoerg c m " n rr.r n a n
cral cenrcr a possibiliryto which Kindlebcrgeris led by his analysisoflatc nineteenrhcenturytlnancial€rises.BuretevatingPrris ro prrjry wilh Landon woutd do
much to underminethe view oi the classicatgoldslandardrhar auribulesirs dura_
bility rc mdagement by a singlc finan€ialccnre..
W h a td o e sr h i sh i \ r o . i . i l , ' n , l v c i (^ a r i . l p n . l . r - o f t i
250
Heg€moni.stibiliry lhmri6
ot rh.Inrdnational Mo.elary SFrem
thc validity of hcgeDron
ic thco.jesol intemalionalmonclary slability? Il confims
that therc havc bccn inst.rnces.nolably lhe aliemrath of world War II. whcn rhc
econornicpowcr ofthc lcrding country so greallv surpassedlhat ofall rilals thal
it succecdcdin cnsuring the sy(enis (abilily in tirnes of crisis by disrounring
treely. providing countcrcyclical lcnding.and rnaintainingan open market.Ir sug8csts,al1hesametime,lhat suchirstanccsarc rarc. Fori lcadingccononacpower
to efiectively acr as lendcr oi last rcv)n. not only must ils market power exceed
Lhrt ofall rivals. but it mus( do so by a vcry subslanlialmargin. British economic
powcr in the 1870sand U S ccononricpowe. in the 1960swere inadcqorrein rhis
regard,and olher ccononri. powcrs Francejnthe tirsl instancc,thc Group of lcn
in thc second wcrc nccdedto cooperclein pro!idine lendcr-of lasr rcson fncili
TI:IE DYNAMICS OF HEGEMONIC
DECLINE
Mighl an inlemalional 'nonelary sys{cmfia( dcpendsti). its imooth operationon
the do'ninance of a hcgcmonic pwer be dynanrically unshble? Thcrc dc rwo
ch,rnnclsthroughwh'ch dynamic inslabiliry miShroperalc:lhe sysremirselfmighr
cvolve in di.eclions lhat atlcnualcthc hegemon s stabilizing capacily: or lhc sys
tem nrighlrcmain thc sanre,bul ils operilion mighrinfluenc€ relalile rnlesol cconomic gfowlh in su.h a way as to progrcssivelyreducelhe economic powcr and,
by implica(ion.rhe stabilizingcapacily ol the hcgcmonThe hypothesislhat LhcB.cuon Woods syslcm was dyniDicslly unstablewas
tnooled by Robert Triffin rs ea.ly as 1947. Triffin focuscd on whal he saw as
inevitablcchrngesiD (hc compositionofresewes.arSuingrharthe syslem s viability hinged on the willingncssofforeign golcmnrcnrs ro accumulatedollars. which
dependedin lum on confidcnce in the mainrenanccof doUar converribility. Allhough gold dominatedthe dollar as a sourccof ;nrcmrrional liquidrry ( in 1958 tne
value ol gold rescNcsw,rs lbur limes rhe taluc ofdollar rcserveswhen,rllcoun
lries wcrc considered.lwo limes whcn rhc United Slareswas cxcluded).dolla$
$'crc rhs rnain source ot liquidily on Lhcnurgin. Yer the willingncss of foreign
govemmentslC)accnrnulalcdollars at the requjredpacc and hcncethc srabililyor
thc gold-dollarsyslcmwcre predicatedon Amenca s commitmentand capaciryro
nraintainthc convedihility of dollars inlo gold al $35 an ounce.Thc rhrearto ht
abilily to do () was thal, under a systcm in which reseracscould lalc $c rorm of
cithe. dolla.s or gold (n scircc natural resourcewhosc supply war insulficienlly
elastic 10 keep pacc with lhc dcDrandfor liquidily). the share of dollars in loml
rcservescould only ircrcase.An ever,growinCvolunc ofloreign dollar liabil;des
was bxscdon a lixed or even shrinking U.S. gold reserve.Thus the vcry srrucrur€
of Brctlon Woods specifically, thc moncrary role for gold-proSrcssively uD
dcrmined the hegemon s capacily to €nsure the sysrcm s smrcrh operarion
throughthc provision ofadequale liquidity.
Dynamic inslabilily also could have ope.aledrhroughthc cffccr oflhe inrematronal monctary system on thc relarivc rates of srowth of thc U.S. and foreisn
econoniies Ifthe dollar w$ systematicallyovervrlucd for r signilicanl porthn of
the Bretlon woods cra. this could have reduccdthc comperirivenessof U-S- cx
ponsand slimulatedforeign penctrationoiU.S. markec. It Lhcdolla. was overvalued due to some combination of Europ€andevalurrionsrr the beginning of rhc
1950s,subsequentdev.tlurtnrnshy developingcountrics.,nd the inabiliry ofthe
Unitcd Statcsto respondro compcdtive dif|cullies by ahering ils exchangera1e.
how might this have dcpressedthe relat've rate of gtus4h of rhe U.S. economy,
Icadingro hegemonicdecline?Onecan rbinkoftwo argumcnrs:one rhat proceeds
along Heckscher-Ohlinlines, anotherthal draws on dynlmic theoriesof inrcm.l
lionallradc.
Thc Hcckscher'Ohlin hypo{hcsisboilds on the obserlation rhrl the United
Starcs wls relatively abondrnr in hunran and physical cxpirrl. Since, under
Heckscher-Ohlinassumptions.U.S. exporrswe.e capilal intensive.any mcrsurc
lhat dcprcssedexpons would havc rcducedils rate ofrctum. Rcducing the rlre of
retum would havc discouraSedinvcstmcnt, dcpressing the ratc of cconomic
growlh and acceleralingthc Lr.S.ecoDomyq relalivc dccUnc.
The dynanic tade theory hypothcsisbuildson rhe exislcnceof lc.rminscurves
in the productionofraded goods.lfproduction cosls fall wilh cumulative ourpul
and ftc bcnctirsoileaming are exlcmrlro the firm bul intemallo domcslic indus,
(ry. ficn exchangerare overvaLuation.by depressinglhe compctirivenessof exporis. willinhibit their prcducion and rcducerhe ben€fitsofteaming. Iloverv: uation is sufficiently large and pcrsisrcnr.ir will shift comparntivc advanlaSein
producrionlo foreign cornpetitors.Thc wcakncssof this hypo(hesisis lhat i( is
predicatedon thc unsubslantiatedassurnplionrhrt learning eiiecrs arc morc inr
portanl in thc productionof tradedgoodsrhannonlradedgoods.Irs strcngfi lies in
theexrcnt to which it conlirnns wifi iniomil characterizations
ofrcccnl trcnds.
Prccisclyrhe sameargu rcnlshrvc beenappliedto the downf.rllofrh€ inrerwar
gold exchu8e standr.d Thc interwar system.which dcpendcd lirr liquidity on
gold, dollars. and sterljng, $,as ii anything even morc susccpriblethan its posr
World War II analog ro dcstabililarion by the opcr.lrion ol-cresham's taw. As
notedabove,rhe legacy ofthe Genoaconfercncccncouragedcentral banksto lc
cumulale lorcign cxchange.Promoring rhc use oi eKchangcrescrvcs whilc rr
tempringro mxintain eold convenibility rhrcatenerlth€ syslem s srabiliry for the
samc rcasonsas under Breuon Woods. But becausclbrcign cxchange reserves
wcre nol lhen concentrirrcdin a single cunency ro rhc srmc exrenl ns alier World
War Il. it *,as ev.n.^ier unde. the interwar sysrcmtor central banksto liqtridlLe
tbreign balxnccsin respons€to any cvcnl rhat undenninedconndencein stcrling
or fic dollar. Inslead of initiating the .elatively coslly rnd complex processol
acquirinS8old from lbreign moncrnryauthoriliesin rhc iacc ofal leasl nroralsuasion to refrain, cenral banks neededonly to swnp one reservecuncncy lbr $c
other on fte opcn market. Greshams law opcraredcven more powerlully when
goldcocxistedw;tb two reservccurcnc;es rhanwilh onc_
This insubili(y mrnifested itseLiwhcn thc l9l I financial c.isis. by undcnnin
ing fai(h in stc.ling conlenibility. induc.d a large-scalcshifr out of London bat...ec
arn.e a;bin
!,.s
a^
252
Hq.monic SlabilirY Ih.ories of rhc l .m.tioDl
Md.lr.Y
svst.m
reservecufrcncy was shaketr.and speculalile prcssureshiflcd to lhe dollar- The
National Baf,k of Belgium. which had hsl 25 pcrccnrof lhc value of ks srcrlinS
rcscrveas a resull oI Brilain s dcvalualion.moved to liquidnte itsdollar balances.
'I
hc Elslcm DuroDcrncounlrics.includinSRtand. Czechoslovalia.and aulaana'
(hen liquidarcd(heir depositsin New York. Bctwcen the cnd of l9l0 and the cnd
oI t9ll. the sharc of torci8n cxchangc in rhc rcscrvc fx)nfolios of twerrv'lhrce
Eurcpcan countrics fcll f(,m 15 to 19 pcrccnl. sisnalin8 the demise ol lhc ex'
chrngc ponion ofthe Cold c)(changeslandard.
1-hcarguolcnt that slrucluring lhe inlcrnalional monctnry syslenraround a re'
scrve asset provided by lhe leading econonric power lcd eventually lo that
counrry's loss ol prcerninencchas becn applicd cven morc frcquentlv to Brildn
allcr world War | ftan lo lhc Unircd Smtcsaflcr world War ll. Becausclhc Sold
cxchange stlrdrrd crcnlcd n forcign dcmtrnd for stcrlirrg bnlanccs Brilain was
ahlcloru largcrtradcbnlanccdclicit\ than would h.tvc bccn pcmittcd othcrwise
In a scnsc.Britain s rescrvcculrcncy slillus wils onc oflhc lactors thal l.lcilitacd
rhc rcsrorarionof sredioSs prcwa. pa.ily. Despitean cnomrous litcr.lurc predt_
cated on lhc vicw (hal thc pound was ovc^,rlucd at S1 86. lhcre remainsskepti
cism lhal lhc cxtenl ol ovcwalualion wns grcrl orlheeffcll on lhe macrccconomy
was signilicanl. Wbile it is no! possiblclo rcsohe lhis dcbatc hcrc' lhe Pornlrelevrnt to thc lheory of hegcmonicstlbilily is lhal.vidcncc ofrcscrve currcncyover_
valuationis .lssubslanlirl in thc carlier pcriod. \rhcn hcgenronYsas lhrcalcned.as
in llrc larcr ocri()d.whcn il Qt|s lriumphint.
Of thc ftrcc Inonelarysyslcnrsconsidercdhcre. lhc clnssicalSold slandardis
thc mosl diificult lo .rnalyrc in tcms of lhc dynrmics of hcgcmonic dcclinc. It
mighl be.rsucd that the pound was olervrlucd for al leiNt a decadebetore l9l3
rnd th.rrBrilain s trilurc lo dcvaluerclulrcd 'n sluggishgrowth. which acceleraled
lhc cconomy s hcgemonicdccline. The cotnpeliiive difficuhie\ of oldcr British
induslncs,notLihlyiron and slccl. and lhc dccclcratingralc ofcconomic 8rowfi in
rhr iirsl decadcot the (wcnticlh ccnlury arc consistcntwilh lhis vicw Thc dcccl_
cration in rhc rrte ofBriliih cconomic Srowth has been rscribed to bolh irdecline
in productivity groqrh anda frllin the ratcotdomeslic c{Pilrlfomalion Thisfall
in tbc ralc of donresri. cnpihl formslion. cspecially rftcr t900, reflccled not a
dccline in British savingsralesbur a surgeofforeign invcslrrcnr' Thus. ifBrirain s
hcgcmonicposition in thc intcm.tft)nal ccoflorrryis io hxvc causedns rchli!c decline, thashcScmonywould havc had 10 bc rcsponsiblcfor the country's cxceP_
lionally hish propcnsiryro cxr'{trtcapital.Thc volume of Rri l ashcalit.l crporls in
lhe decaderprecedingWorld Warl hasbecnallributed,rltcmrtively- to the spread
of industrializlltionrnd rssocialcdinveslrncnlopporlunilicslI) othcrcountri€sand
conlinenlsand to imperfcclionsin thc structurcofBritish capitd markelslMt re_
sultcd in a hias loward inveslmcnloverscas ll is impossiblcto resolvethis debate
hcrc.Butthcvcrsion offtc marld imp.rfcclions ugumcnl lhat atlributcsthe[nndon capilal markel's lackofinleresl in doncslic investmenlto Brilain's relatively
cffly and lahor'intensivc fom oi induslrirlizrlion implics lhnl thc samc faclots
responsiblefor Eritain's mid'nineteenlhccnlury hegemony(the induslrirl r€volu-
253
Ahhoughrheclassicalgold srandedexpencnced
a numberof s€riousdisruD,
tions,suchasrhe lt)07 pdnicwhena frnrn(ilt \.nsi\ threarL,ncd
rn undcrminc;1.
Eurcp€ancore.thc prcwarsysrcmsurvjvedthcscdisturbanccs
intacr.Evcnruay.
howcvcr.rhesanrctorcesrhartcd to rhcdownti of thc inrcrwargotdexchan;e
shndardwouldhnvcundcrmincd
rhcsrabiliryof rheprc",arsystem.As rhcrarcot
econom'cgrowri conrrnued
to outsrriprhc ralcofgrowrh of lotd (hc supptyof
whichwaslimircdby rhcavaitabitny
ot orc).counrries
woutd h.,!c g.ownincr;as,
in8lydcpendcnr
on tbrei8nexchangc
rescwesas
a sourceofincrcmenlatIiouiditv.
As in lhc lao{'s.grosrngrelnn(c0n (\(hrnfc rc\crve.in th. trceot r(.t,uircit
'ncl.r\tic
q,th rhcreeoldsntplic\$ouldhrvc e!cntualypro\cn,neumprtihtc
seNccentcr'sabiliryro mainkingoldconvenihitny.
Dc Ceccoargueslhaithc sinrllionwasakcadyhcginninS
rt)unravelin lhc jirsl
dccadcofrhe rwcnrieftcenLury-lharrheBocrWlr signatcdrhcendof rhclona
pea((ol tficnrnclccnrh
c(nrur).rhcrcbv
unJcr,nininf
rhc$ ill,nfne\\,,t tol!nllrl
bclli8crcnrs
ro hold lhcir rescrves
as dcposilsin tbreigncountries.... More im
ponanrfor our pu.po\rs.he sug8csrs
rhlt lhc sysEmwas dcslabil'zedbv rhc
S r o w t h oUt S c ( , , n , , m i c p i ' s c r r c l a r r \ c l o t h i j l 0Bt G
r i rl .el l n . G r ! c n t h c c \ f , c r inrcnlrl naturcof U.S_Ircasurycftins t() acconnnodate
scls(rnalvnriarir)ns
in
nx)ncydemand.thc UniredSrarcsreliedheavilyon Soldjmpodswhcnevcreco
nonricconditionsrcquir€dnn incrcascin nx'ncysupply,not.rhlyduriDgharvcsr
andplandngscrrons.Whcnrhc dcmandfor nnncy increascd,
ihc Uni(cdSrarcs
rmponcdgold.nuinly lrom rhc Bnnkor Enst{nd.which wrNcharscdwirh pc8
8rn8thc slerlingpriceofeold on thlj Londonmtutct wirh I lold reservcot ontv
f.lt) mrllionA\ rhr Atnc'na'rc(,,n,,m)Srcw.hi,rhrr\ r!cr:;c dcmandr0r r,,lj
lmm LdnJonanJ rhxr demrnd\ \(.nsonlttlu(ru:li,,n rn.ni*. ret,rr,,. r,irtrc
Bankoflngland s p.imaryrescrveitndirscrpaciryto artraclsopplcmentrry
funds
fromolhercenlcrsTo rcphrnscdc Ceccos xrgLrncnlin renirsof hcgcnuricsrx,
bilirythcory,thegrcwrhofthe tjnitedSratcsrchrivet(l rharof Brilainundernrincd
Britnins capnciryto srrbitizeinlcmarionat
finxncirtmrkets: rncci ficallv.irsxhil,
ily h' scrve\rrnultrn.ou{l! r. rhc world . onty frcc gotdmrrtcr. proriiinp ho*
elcr ntu.h gold wr{ rcquircdby olhcrcounlri.s. nd lo nrajntai rhc slabitirvof
(erlrng.thc rct(rcn.fpornrfor rhc
rrr..sin.r
EL'hJt.y,rcrr,,f ftrcJ irctr.,ngc
scnsc,
dc Ceccoscesilldicrrionsot rhcinter*nrstalcnrarc_ Ilrirnjnincap blcol
st.bilizinethc ink'm.rionalsysrcmrnd r Unir.il Srarcsunwi ins b do so_
emcrginS
in fic lirsr decadeot thc lwenliclhccnrun_'.
Fron thispLllipccli!e.lhe
pccss ol h.e.mdnn-d..linc rhrrcurDinar.din rhcinr.,oarn,rat,rtr,nellrv(tjfli'
c u l l i c s t l f r h c i n r c r w r r l c r r , $ . r . I t m , , \ r Jc( cJ ch ll cWr i, r r l ( l W r r l . F v ( n h c t i , r c
tlB wnr.rhe proccss.stbatled t{r thc downtxltot cstablishcd
nr)nchrv lrrnpc,
mentswcrealrcxdyundcr!.v.
CONCI,USION
Muchofthe intemxlionalrelation:i
lilerulureconccmcdwirh pmspcclsfor intcma
rionlr 6^--r"-,
-,.^--
-.,
254
H.t.mni.
Sr.bilitY tl€rk'
ol the hrsatiodl
M6'bry
Svdd
nolablyI 890-t 9 l4 aod 1945-7I '
dominance'
lweenearlier pcriodsof hegemonic
ofintematronal
andthcnatur;ofthe raskp;es€atlvconfrontingrspiringarchitccts
paperI suggesl
this
worldln
multiPolar
increasingly
i""ir*i.", i"
..*"t"
"n
the relnrivelv
understandins
strbilirv theoriesa;c hclPrulfor
i
woodr sys
"i1""1,.""1.
Brctlon
Ihe
early
.mon'h,'nc":rr"nnf rhccld'si(algold \ttndrrd rnd
the
srmc rime'
Ar
dilfi(ulric\ ol rhc intcrqal vcart
*"]i
*..
i.*
liew
"r,hc
\tabililv
"'
rhe
heScmonic
"iof thc elidcnccis difficutl ro reconcilewith
much
rn
promrnence
Evenwhcnindividualcountriesoccupiedposilionsofcxceplional
and
functn'nrng
form
in
lhe
wasrcflccled
rf,alpromincnce
rfr"*-iJ**..y
predl
",4
svsrcnrwas still lundamentally
lhat
svsrem.
.-*lary
.i,r," i""-"i"""r
coophegemonic
of
.orJ ,,n it,r"-otio*f collaborarionKcohanes notion
pcriods
of
in
clen
.*p"rr,;nn is rcquircdfor slslcnricstabilitv
cncouragccoop
m'iy
".iion"-,ftu,
Llonrrnan(cllhouFhthc Prc\cnccol J hcgcmon
hepcmonic
tclsrions
m'rnerary
.rlnlicahl'rrtinrcmarronul
t"i*i.t-*"t',lrre;rly
iolcma'
of
ihe
"',"ti*
ffr" ;rnpnn-"" of *ffntt"ration is cquallyappar'nlin thedesign
th€
man_
lnd
ils operalionun'lernofm'l circumslanc€\'
rronutrn.ncra.y
ap"ys"nr.
whcn
thcory
rpenrnt ol cri'e\. Dc\prlcdreu\cfulnc'\ ofhcscmoni(\lnhility
n
lrlron\'
monerrv
oireJr,' shnnperiod.:rnducll-detincJrspect\nl Inrcmati('nitI
svsremhAsalwavsbecn aflethcgcmonv"in lhc scnse
monerarv
lr'. inrcmati,'nat
theprovrson
iiar rnoreltrana aominanteconomicl$$ er *as rcquir€dto cnsure
precrse')
was
rl
of intemationalmonctar}slability Morcovcr'
andmainlcnance
or
rhein'
rhe
romr
;;"; ;;;.,;'
rowct m.hr i.rceiurr) condtrinncLr
".,'""*'.
wr\grcal_
lin in'L'hilil) rnJdlnlrnr'ren'c
ry'r"- rlorrn" pulcnrrrl
rem"ru,nr,l
or
J'mon\rtrrc\ thc \n{td ttndPeruasrvcnes(
c\pcnen({
hisroricrl
e\r. Ah,vc:il.
h€
any
\a
mu\l
rhanecsrn narron:rlc(onomicnoqcr:sincehegcm"ny'\ lrrn{ilory'
asir\ ba\i' ci!en rhccosrror
'"i"ri"ii,'".,i.-""w .v\rcmrhlr r:ite\hescmon'
i ncw syslcmon
monehryrciorm'it wouldseemrrnwise1oPrcdicalc
intema(ional
sucha transicnlbass
16
TheTriadandthe UnholyTrinity:
Problemsof International
MonetaryCooperation
BENIAMINI. COHEN
In lhis essay,Eeniamin,. Cohencxpbres rhe atrr.lctionsrnd dit,
ticulties
of cooperalion
amongnnrions
on internntional
monctary
matte6,emphasizinS
how internalional
politicnlrcalitiesconslrainintcractions
amongindependent
nation-slaies.
Monclary
policy cooi(lination hns some potential b€nciirs,bul lherc nre
many uncertaintiescountriesface in cngagingin (ooperaliveb.h.rvior.
Theprimarydilcmmaislhil Sovernments
cannotsimulraneouslya(:hiovc
theobjcctives
oi ex(h.rn8e-ral0
srnbility,
cnpihl
mobiliry,nnd monetarypolicy autonomy.As Sovernmenls
nrc
{orcedto rr.rke rradeolfs nmonSthese8oals,rhcy witl abandon
lhe Boal of cxchanSernlc slability,:1ndthus monerary(:(x)por.l
laon,when it is loo conly rclativ€lo lhe olherpolicyobjccrivcs.
The cy.lic.rl nnd €pis{r.licqu.llityof monclrry (ooperationis
linked Io governmenh'changin8inccntivesb pursucstablccxchanSeralcs.Cohen'sargumenlhighli8htsrhc diffaculryoi suslarningcoopcr.rlivearran8cmenlswhcn slates'nationa' inlcrcsls
diverSe.
.. . Annng $e G-7 lcroup of Sevenlcountrics(|l|e UnilcdSlorcs.Brnain,Canada,Frincc. Cermany.llaly md Japan).pu*cdures for monclarycooper.Iionhave
beenSraduallyintcnsifiedsinccthe celeh.it.d PtxTaASreenrenr
ot scprcmber
1985.which formilly plcdgedpanicipMrsr{) r coordinlrcdrealignnrcnl
of exchange
rales.Ostensibly
theainrof lhescevolvingpro.cd'rrcsis tojointly manage
cunencyrelationsandmacroeconomic
conditi0nsacrossliurope.Nonh Amcricn
andJapan-thearcareferrcdto by manysimplyas theTri.rd.Financcminislers
tromlhc G 7 countricsnow meetregularlyk) discussrhccurrenlandprospcctivc
&njami.J.(.hcn ThcTnld r.d rhct InhottTnnry. ft bt.nNof Inrcrnar
iomt MoncrrryC$F.r
lnh li.n Richardlfirrort. RichddL.r\.r. rndJohnRnvcnhilt.ert\Prrtt. Iiuonlir R.tun,r nl
th. lu)th: (\rv.ranq .r C.nlh.rz Att.n & t Inwin.l !r)l, m Bl 53.Rcprinrcd
by pcnnhrnrn.