Reading 3 - Steven R. Hall
Transcription
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 ;:i :#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.