Global Trade, Monetary Tradeoffs
Summary :
Table of Contents
- The 'Unholy Trinity'
- Theory through history
- The allure of autonomy
- Capital flight takes off
- Cooperation and control
- Works cited
Abstract
It is certain that the last half-century of economic history has seen a dramatic increase in global market integration. States in this integrated setting must make difficult financial decisions with a great deal of insecurity. In managing their national currency, they face uncertainty and a chorus of opinionated voices. But it is worth considering how and why the world economy has taken on its particular forms, and the way political institutions have shaped monetary policy. This essay analyzes, from a largely political and historical perspective, the tensions between monetary autonomy, capital mobility, and fixed exchange rates. I argue that political considerations have favored autonomy but have also favored conditions that undermine that autonomy. To introduce the analysis, I offer an outline of the theoretical tensions between these three states of the world. I apply this theory to the history of global currency and trade to show that domestic politics increasingly favored monetary autonomy. After explaining how and why capital mobility has undermined this autonomy, I conclude by considering strategies states use to manage the tradeoffs and retain control over their currencies.
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