National Currencies and Globalization

Endangered Specie?

Paul Bowles

• Publisher: Routledge
• Year: 2007
• Print ISBN: 9780415774277
• eBook ISBN: 9781135976026
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: Politics
• Index: Politics & International Relations

Globalization and money – two concepts inextricably linked. In many ways the speed with which financial resources traverse the globe, the opportunities which this provides for the efficient allocation of resources, the possibilities which this creates for financial crises and traders who act as agents removed from the concerns of national citizens have come to symbolize the phenomenon, hopes and fears of 'globalization'.

However, inextricably linked they may be, but well understood they are not. In the case of national currencies, a wide variety of predictions and analyses can be found. For some, national currencies represent barriers to a seamless global economy. Others argue that national currencies will disappear due to the power of international financial markets which will force national governments to adopt more credible currencies and abandon their own. In contrast, others see imperialism or regionalism as the main challenges.

Paul Bowles provides an innovative and systematic analysis of the implications of theories of globalization for national currencies. He critically examines whether, as a result, the world is heading for fewer currencies. He argues that the main 'force of globalization' which is endangering national currencies is that of globalization as 'neoliberal globalism'. However there is no single neoliberal position on money and so the 'contingent' nature of neoliberalism explains why this particular force of globalization operates more strongly in some countries than others. This is demonstrated in case studies of four systemically significant currencies, namely, those of Australia, Canada, Mexico and Norway.

National Currencies and Globalization will be of interest to researchers and students of International Political Economy, Politics, Economics and Finance.

1 Introduction

The questions

Globalization and money—two concepts inextricably linked. In many ways, the speed with which vast financial resources traverse the globe, the opportunities that this provides for the efficient allocation of resources, the possibilities that this creates for financial crises, and the bankers and foreign exchange traders who act as agents removed from the concerns of national citizens have come to symbolize the phenomenon, hopes, and fears of “globalization.”

And yet, inextricably linked they may be, but well understood they are not. Globalization, a concept that, according to McGrew (2001: 293), has “colonized the intellectual imagination of the social sciences,” remains deeply contested as to its meaning and its ability to accurately capture the dynamics of the contemporary phase of capitalism. There is no agreement as to what constitute the “forces of globalization.” As a result, the implications of globalization for understanding the world of money remain complex. In the case of national currencies, a wide variety of predictions and analyses can be found.

For some, national currencies represent barriers to the free movement of goods and capital, the stitching that needs to be removed before the seamless global economy is complete. According to Rose and van Wincoop (2001), for example, national currencies represent a “barrier to international trade,” the removal of which would provide significant economic benefits. “Globalization” requires, and is likely to lead to, the disappearance of national currencies. Others argue that national currencies will disappear because the power of global financial markets has become so great that national governments will find themselves forced to adopt more credible currencies and abandon their own. In such an environment, according to Taylor (2000), “only monies of the highest quality are likely to survive.” Globalization as global financialization dictates this outcome.

For others, the spread of “dollarization” and “euroization” reflects imperial structures—the real structures of globalization. Here it is the “hegemony of the dollar” that acts as a symbol of U.S. imperial ambition and helps to explain the form that it takes. Thus, for Wade (2003), the role of the dollar in the global economy represents a part of “the invisible hand of the American empire,” a part of the “paradox of economic globalization” (2003: 87) that appears as agentless process and yet reinforces the power of the United States.

In contrast, the birth of the euro represents an event of epochal significance to others, a significance that points to the emergence of regional, rather than global, currencies. For some, such as Beddoes (1999), “regional currencies” represent the future. Others still, the “globalization skeptics,” see no epochal change, only neoliberal ideology at work—as globalism—as the force for removing monetary autonomy, and perhaps independent currencies, from national governments. For Fligstein (2001: 211), it is “the politics of domestic constituencies” that hold the key to understanding currency crises; globalization imposes no binding constraints on governments, and it is to domestic politics that we must look.

How can these competing interpretations and claims be assessed? If national currencies are an endangered specie, what are the “forces of globalization” causing this? Do they emanate from the processes of global economic integration? From imperial ambition? From the power of global financial markets? From regionalism? From neoliberal globalism? Globalization has been conceived in many different ways. To analyze in which guises and to what extent globalization threatens the landscape of national currencies that characterizes the contemporary world is the central concern of this book.

The originality of this book, and the first contribution I claim for it, is precisely that it interrogates the concept of globalization closely and, by doing so, teases out the implications explicitly for national monies. It does not assume at the outset “what globalization is” or assume that the dynamics of the contemporary period are self-evident. Rather, the contentious concept of globalization is critically analyzed itself, its various meanings are explored, and their implications for national monies are distilled. This enables us to tease out how exactly globalization is allegedly changing the currency landscape, which specific forces have been invoked, and which specific actors are involved. Globalization is such an open-ended term, its extent, measurement, and meaning so contested, that an analysis of its impacts requires that the scene setting be carried out carefully and in detail before the plot unfolds.

It is by taking this approach the book is able to make its second contribution, namely, identifying that the main “force of globalization” which is endangering national currencies is globalization as neoliberal globalism. Other versions of globalization, which specify different mechanisms, have some analytical purchase too, but the main driving force in the case studies presented here is that of globalism. However, its force has been felt unevenly and with different implications in the four countries analyzed; it is not just states’ positions within the global political economy and their currencies’ place within what Cohen (1998) has termed the currency pyramid that is important here, but states’ domestic histories, institutional structures, and policy stances that determine whether, and how, neoliberal globalism endangers their currencies.

The thesis

Based on detailed case studies of four “systemically significant currencies” (SSCs), namely, those used by Australia, Canada, Mexico, and Norway, I argue that the main threat to the continued viability of these SSCs comes from globalization as neoliberal globalism. Certainly, economic integration, regional initiatives, and imperial ambitions have some explanatory power as well, but the main “force of globalization” that impinges on the future viability of the system of national currencies that we see in the world today is globalism. For all the attention paid to “global forces” in many contemporary debates, in the context of these systemically significant national currencies at least, it is the political economy of domestic debate that is critical.

However, there is a twist. Neoliberalism has no single position on money. In fact, there are many positions. So, whereas neoliberalism may have clearly identifiable and predictable implications for some policy areas, this is not the case for monetary governance. There may be a common neoliberal belief in “sound money,” but the best of way of achieving it is a matter of debate. For this reason, I propose the concept of “contingent neoliberalism”—the idea that the content of neoliberal prescriptions depends on the context in which they are to be applied—as best explaining currency debates in the four countries studies here.

The “contingent” nature of neoliberalism explains why this particular force of globalization operates more strongly in some countries than others. It explains why the debates over national currencies were more vigorous in Canada and Mexico than they were in Australia and Norway. It also explains, for example, why the currency debate was quite different in Australia and Canada, two countries that otherwise share similar political and economic characteristics. And it explains why the currency issue was much more muted in Norway, where neoliberalism has not taken such a strong ideological hold. More contentiously, it also helps to explain, along with country-specific factors, why the vigorous currency debates that took place between roughly 1998 and 2003 in Canada and Mexico have disappeared from the political and economic radar screens as the influence of neoliberal globalism has waned.

The background

That the implications of globalization for the continued existence of national currencies should be a prominent feature of debate is not surprising. Historically speaking, the association of nation-states with national currencies has been a relatively recent one (Cohen, 1998; Helleiner, 2003). The question remains whether it will be a fleeting association as the forces of globalization undermine the nation-state and lead to a world of a few, or even one, supranational currencies.

In many countries, money initially came from many sources. Coins from numerous countries circulated within any particular set of national borders. It was only in the relatively recent past that it can unambiguously be said that nation-states have been dominant in the control of money. According to Helleiner (2003: 243), “territorial currencies have had a relatively short life.” Zevin (1992: 46) dates this life as the period 1870–1970. That is, it was only in the late nineteenth and twentieth centuries that money became truly national in character. The institutional accompaniment of this trend was the rise of national currency-issuing central banks.

Even in this period, there were numerous examples of countries either sharing or subordinating their monetary sovereignty, to use Cohen’s terms (1998). He provides many examples—Panama, Liechtenstein, San Marino, Monaco, Andorra, Liberia, Lesotho, Namibia, Bhutan—of jurisdictions where the currency of another country has been used in lieu of a “national” currency and where monetary sovereignty has therefore been subordinated (1998: 48–9). Furthermore, sharing monetary sovereignty also has a nineteenth- and twentieth-century history, as the examples of the Latin Monetary Union, the Scandinavian Monetary Union, the Belgium-Luxembourg Economic Union, and the CFA Franc zone, among others, demonstrate (1998: 69–74).

These examples notwithstanding, Zevin’s argument is essentially correct. Since around the 1970s, however, it has been argued that national currencies no longer exhibit a one-to-one correspondence with nation-states. For example, Scholte (2000: 52) argues that “the ‘American’ dollar, the ‘Japanese’ yen, and the ‘German’ mark and other ‘national’ currencies have undergone a significant degree of deterritorialization. They circulate globally, being used anywhere on earth at the same time and moving (electronically and via air transport) anywhere on earth in effectively no time … Money has become considerably (though of course not completely) detached from territorial space.”

This deterritorialization of money is also supported by Cohen (1998: 17), who argues that “the notion of simple territorial currencies … is at best a convenient fiction. The organization of currency space, no less than political space, has become to some extent deterritorialized.”

Evidence for this deterritorialization can also be found in the rapid expansion of financial markets—global financial markets. To give just one example, the daily turnover in foreign exchange markets increased from $100 billion in 1979 to more than $1.9 trillion in 2004 (Scholte, 2000: 86; BIS, 2005). Further evidence can be found in changing monetary arrangements around the world. New forms of “monetary governance” have emerged, most obviously in Europe where the long process of integration now includes a new common currency for thirteen of the EU member states and a European central bank.¹ The EU accession states in Central and Eastern Europe will also become part of the euro zone. In Asia, the response to the financial crises of 1997 has resulted in a new “monetary regionalism” emerging (Dieter, 2000) and the idea of an Asian currency unit has been floated (ADB, 2004). In both West and East Africa, currency union is on the agenda, with both regions planning to launch regional currencies in 2009; the Gulf Cooperation Council has announced it will do so a year later. In the Americas, El Salvador and Ecuador have unilaterally dollarized, and debates about dollarization have been evident in much of the continent, most notably in Argentina before its financial crisis in 2001, but the issue also received considerable attention from politicians and business groups alike in both Canada and Mexico. Although these debates and initiatives all involve governments, in many parts of the world citizens are increasingly adopting the U.S. dollar or other “safe” currencies in lieu of their own national currencies.

These issues have been analyzed by others, and there is already a significant body of literature. Among this, the recent contributions of Cohen (2004), Helleiner (2003), and Porter (2005) stand out as exemplars.² The latter analyzes the globalizing world of finance since the 1960s, arguing that it is quantitatively and qualitatively different from past episodes of “globalization.” Porter distinguishes between money and finance and concentrates on the latter with relatively little analysis of money, and its national character, as such. His analysis is useful as a demonstration of the extent to which global markets have grown and, more especially, the range of actors that is now involved in, and the “institutional complexity” (2005: 13) of, the regulation and coordination of global finance. Porter’s contribution is also useful in setting out some of the frameworks (market-based, state-centric, Marxist, and institutional) within which globalization is viewed and the contestations that surround this concept. The focus of these frameworks, however, is global finance rather than national currencies. For explicit analyses of the latter, we need to look elsewhere.

Helleiner (2003) adopts a historical approach, and he investigates the reasons for the emergence of national currencies. Here, he identifies two preconditions—the emergence of nation-states and the technology to produce money—and three primary motives, namely, “the desire to construct national markets, the various macroeconomic and fiscal goals, and the objective of strengthening national identities” (2003: 15). Helleiner also considers the “widespread nature of challenges to territorial currencies” (ibid.: 219) in the contemporary period. In this task, he finds the historical analysis illuminating in pointing to ways in which the challenges take both old and new forms. For him, the desire to construct global markets, the waning of belief in the efficacy of activist macroeconomic policy, and the emergence of new identities (both subnational and supranational) point to the forms that new challenges take. Thus, the contemporary era of globalization has led to challenges for territorial currencies. Nevertheless, he concludes that predictions of the demise of national currencies should be treated “very cautiously” (ibid.: 244).

Cohen (2004) opens with the question, “What is the future of money in an increasingly globalized world economy?” a question similar to that posed here. His answer: that the world will not see a dramatic reduction in the number of currencies. He argues that what he terms the “contraction contention”—the proposition that the number of currencies will significantly contract—is exaggerated, a conclusion also similar to that reached here.³ What differs between our accounts is the reason for reaching this conclusion. Cohen takes as his starting point the increasing competition between currencies as sufficient proof that globalization, implicitly equated with an increase in cross-border flows, can be assumed and that the task is to analyze its implications, an analysis that considers the policy choices facing states at various levels of the currency pyramid. He concludes that those choices are unlikely to lead to many states giving up their currencies.

This volume may start with the question of how globalization affects national currencies, and it may conclude that they are endangered only to a limited degree, as other authors have also argued, but the claim made for this volume is that it explores more precisely globalization’s effects and provides a unique explanation for reaching a common conclusion.

This conclusion is reached here on the basis of four detailed case studies. The aim is not to provide an exhaustive account of the possibilities for all currencies. Both Cohen (2004) and, to a lesser extent, Helleiner (2003) have provided this type of analysis. Here I focus in detail on four examples of currencies that, as I explain further below, can be seen as critical to an understanding of whether the system of national currencies is likely to continue in its current form.

In writing this book, I am able to claim a temporal advantage over other authors. Not only I have been able to benefit from their insights, but the challenges to national currencies are less “widespread” now than, say, five years ago when dollarization or currency unions (or both) were more prominently on the policy agenda. In one way, this makes my task easier in that the continuance of national currencies is probably a much less controversial conclusion than it was in the early 2000s, notwithstanding influential commentators, such as Wolf (2004) advocating a single global currency. However, it also opens up new intellectual questions for consideration, such as why the debates over national currencies seemed to peak in the early part of the decade and have disappeared in many countries since. What are the conjunctural factors that have led to this disappearance? What does this tell us about the “forces of globalization” that have been invoked to predict a move to fewer national currencies? In particular, I argue that the disappearance of the “national currency question” is, in part, a reflection of the broader waning of influence of neoliberal globalism, as suggested, for example, by Saul (2005) and Bello (2006).

The approach: identifying the “forces of globalization”

Assessing the impact of the forces of globalization on national currencies is not a straightforward empirical exercise; we need a theoretical framework within which the data can be interpreted. As noted above, the approach taken here differs from other discussions of currency issues by explicitly analyzing the implications of different theories of globalization for national currencies. The theoretical debates over the nature of globalization need to be reflected in the analysis of currency issues; the implications of globalization for national currencies depend on which approach to globalization is adopted. Different approaches posit different mechanisms and actors, and these need to be identified and examined if we are to get a better understanding of which of the forces of globalization are the most relevant in this context.

To obtain an analytical handle on the implications of globalization for national currencies, therefore, the first step is providing a guide to the vast literature on globalization itself. I therefore present a taxonomy of theories of globalization and, on the basis of this taxonomy, examine the implications of these theories of globalization for national currencies. This is set out in Part I of the book.

In Chapter 2, theories of globalization are differentiated on the basis of the changing relationship that they ascribe to states and markets. Four distinct categories are proposed in this taxonomy. The categories used are:

• globalization, according to which a technologically driven proces...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• List of figures
• List of tables
• Series preface
• Acknowledgments
• 1 Introduction
• PART I Globalization and national currencies
• PART II Case studies of four systemically significant currencies
• PART III Conclusion
• Notes
• References