THE POLITICAL ECONOMY OF INTERNATIONAL MONETARY RELATIONS

This paper examines the influence of government ideology, political institutions and globalization on the choice of exchange rate regime via panel multinomial logit approach using annual data over the period of 1974-2004 in a panel of 180 countries: 26 developed and 154 developing. We provide evidence that government ideology, political institutions and globalization are important determinants of the choice of exchange rate regime. In particular, we find that leftwing governments, democratic institutions, central bank independence and financial development increase the likelihood of choosing a flexible regime, whereas more globalized countries have a higher probability of implementing a fixed regime. More importantly, we find that political economy factors have different effects on the choice of exchange rate regime in developed and developing countries. All our results are robust to panel ordered probit model. (C.P. Chang). 1 indicate that right-wing parties approve significantly more policies on deregulation, compared to left-wing governments. 0176-2680/$see front matter

SSRN Electronic Journal, 2000

Journal of Development Economics, 2001

Latin America's economic history has been replete with extreme macroeconomic experiences. When one reflects on the Southern Cone policy experiments of the late 1970s, the debt crisis of the early 1980s, and the heterodox stabilization programs of the mid to late 1980s, it becomes evident that the region has contributed more than its share of material for the ruminations of macroeconomists and students of political economy. The decade of the 1990s has not proven to be an exception. The market-oriented reforms that many countries in Latin America undertook during the late 1980s and early 1990s were followed by a wave of capital inflows into the region. These proved to be the harbingers of a new area of integration by Latin American countries with international capital markets. This enhanced level of financial integration represented a change in circumstances that redefined the macroeconomic playing field for Latin American countries. Its key features were more or Ž less complete Afirst generationB reforms macroeconomic stabilization, privatiza-. tion, and trade liberalization associated with the AWashington consensusB, as well Ž . as partial Asecond generationB institutional reforms. These have been combined with enhanced openness to international capital movements. Among the most critical challenges posed for macroeconomic policy formulation by this new set of circumstances has been the formulation of an exchange rate policy. In the wake of the ERM crisis of 1992, the Mexican crisis of 1994, and the Asian crisis of 1997, a new view has begun to emerge about the exchange rate policy under circumstances such as those that currently characterize most Latin American economies. The new conventional wisdom is that developing countries characterized by a high degree of integration with world capital markets have a restricted menu of exchange rate regimes from which to choose. In its most extreme form, this view suggests that along a spectrum of exchange rate regimes ranging from clean floats to the abandonment of the domestic currency, such countries must now opt for one of the corner solutions. The argument is essentially that high capital mobility, coupled with domestic policy weaknesses will interact to make any intermediate regime vulnerable to successful speculative attacks, implying that if the value of the currency is to be managed, only very AhardB pegs, in the form of currency boards or dollarization, can be sustained.

Journal of Development Economics, 2001

Latin America's economic history has been replete with extreme macroeconomic experiences. When one reflects on the Southern Cone policy experiments of the late 1970s, the debt crisis of the early 1980s, and the heterodox stabilization programs of the mid to late 1980s, it becomes evident that the region has contributed more than its share of material for the ruminations of macroeconomists and students of political economy. The decade of the 1990s has not proven to be an exception. The market-oriented reforms that many countries in Latin America undertook during the late 1980s and early 1990s were followed by a wave of capital inflows into the region. These proved to be the harbingers of a new area of integration by Latin American countries with international capital markets. This enhanced level of financial integration represented a change in circumstances that redefined the macroeconomic playing field for Latin American countries. Its key features were more or Ž less complete Afirst generationB reforms macroeconomic stabilization, privatiza-. tion, and trade liberalization associated with the AWashington consensusB, as well Ž . as partial Asecond generationB institutional reforms. These have been combined with enhanced openness to international capital movements. Among the most critical challenges posed for macroeconomic policy formulation by this new set of circumstances has been the formulation of an exchange rate policy. In the wake of the ERM crisis of 1992, the Mexican crisis of 1994, and the Asian crisis of 1997, a new view has begun to emerge about the exchange rate policy under circumstances such as those that currently characterize most Latin American economies. The new conventional wisdom is that developing countries characterized by a high degree of integration with world capital markets have a restricted menu of exchange rate regimes from which to choose. In its most extreme form, this view suggests that along a spectrum of exchange rate regimes ranging from clean floats to the abandonment of the domestic currency, such countries must now opt for one of the corner solutions. The argument is essentially that high capital mobility, coupled with domestic policy weaknesses will interact to make any intermediate regime vulnerable to successful speculative attacks, implying that if the value of the currency is to be managed, only very AhardB pegs, in the form of currency boards or dollarization, can be sustained.

Monetary Integration and Dollarization

Global Monetary Governance, 2007

One of the most remarkable developments in the world economy at the dawn of the new millennium is the rapid acceleration of cross-border competition among currencies-what I have elsewhere called the deterritorialization of money (Cohen 1998). 1 Circulation of national currencies no longer coincides with the territorial frontiers of nation-states. A few popular monies, most notably the U.S. dollar and the euro (succeeding Germany's Deutschmark, the DM) have come to be widely used outside their country of origin, competing directly with local rivals for both transactions and investment purposes. The origins of this development, which economists call currency substitution, can be found in the broader process of globalization, which for the purposes of this volume, following Kahler and Lake (Chapter 1) may be understood to refer to economic integration at the global level. The result is a fundamental transformation in the way money is governed. Where once existed monopoly, each state claiming absolute control over the issue and circulation of money within its own territory, we now find something more like oligopoly-a finite number of autonomous suppliers, national governments, all vying ceaselessly to shape and manage demand for their respective currencies. Monetary governance, at its most basic, has become a political contest for market loyalty, posing difficult choices for policymakers. Among the alternative policy choices available to governments today, an option that is attracting increasing attention is replacement of national currencies with a regional money of some kind. Currency regionalization occurs when two or more states formally share a single money or equivalent. Broadly speaking, two main variants are possible. First, countries can agree to merge their separate currencies into a new joint money, as members of Europe's Economic and Monetary Union (EMU) have done with the euro. This is currency unification, a strategy of alliance. Alternatively, any single country can unilaterally or by agreement replace its own currency with an already existing money of another, an approach typically described as full or formal dollarization. 2 This variant, a more subordinate strategy of

2004

This paper is released under the terms of the GNU Free Documentation License. For more information see http://www.gnu/licenses/fdl.txt This article critically examines existing theoretical perspectives on the political economy of exchange rate policymaking, and develops an alternative approach based on an 'open Marxist' methodology. It argues that exchange rate policymaking needs to be analysed as a component part of a wider governing strategy developed by state managers to provide favourable conditions for capital accumulation, regulate class struggle, and ensure sufficient autonomy for the pursuit of high political goals.

2005

This paper investigates the ways monetary power affects the rules and operations of pegged exchange rate regimes. Two puzzles form the basis of this analysis: Why are exchange rate regimes inherently asymmetrical and why do monetary negotiations result in similar bargaining outcomes? Monetary power is the key to solving these puzzles. Drawing on other contributions to this project, the paper argues that monetary power results from differential adjustment obligations of weak and strong countries. At their very core, the rules and operations of pegged exchange rate regimes reflect issues of how to distribute the burden of adjustment. Conceptually, the paper starts with the argument that there is a distinct structural logic of monetary interaction owing to the interdependent nature of exchange rates. Under these conditions, participants in an exchange rate regime need to establish consistency between internal macroeconomic policy and external exchange rate policy. Countries solve the consistency issue on the basis of market power. Strong monetary players have greater bargaining leverage in monetary negotiations because they do not face a reserve constraint. They can use their leverage to protect their own domestic macroeconomic priorities and to compromise merely on questions of external adjustment and financing. The paper evaluates these analytical assumptions by comparing two European exchange rate regimes (the snake and the European Monetary System) and a global regime (the Bretton Woods system).

Eurasia Review, 2024

The currency globalization and currency geopolitics do not exclude each other at all, but rather complement each other. At the same time, in certain historical periods, as a rule, one of them prevails: either currency globalization or currency geopolitics. The new world monetary order is being formed as a combination of monetary globalization and monetary geopolitics, in which the latter plays a predominant role.

1988

International Economics and Economic Policy, 2012

Economists' faith that variable exchange rates benevolently equilibrate has been empirically disconfirmed. That faith is here tackled at its theoretical core with an exchange rate model that although ultra abstract, includes the undeniable fundamentals of market power and differential goals of central bankers and large-scale private players. It permits a game theoretic analysis under the assumption that all agents maximize their payoffs. The paper then relaxes the assumption of maximising agents, allowing for a more complex and thus realistic second version of the model that is interpretable within SKAT, the Stages of Knowledge Ahead Theory of risk and The text is written by Robin Pope, with valued improvements on successive drafts from comments of Johannes Kaiser and Reinhard Selten. The participants' instructions here reported are based on those written by Sebastian Kube and translated into English by Reinhard Selten, with minor improvements on these from Robin Pope. The calculations requested by Robin Pope were kindly furnished by Johannes Kaiser. The particular model within the central bank conflict co-operation theory of exchange rate determination is that of Robin Pope and Reinhard Selten, with valued input from Juergen von Hagen on allowing for the distinct input of the government sector. The operationalisation of the model into a computer-programmed set-up is uncertainty. In an experimental setting, this second version of the model points to: a) the inability of agents in central banks, governments and the private real and financial sectors to operate in maximising ways; b) destructive central bank conflict; and c) the widely discrepant outcomes arising from the dynamics of individual personality differences. The paper's theoretical and empirical findings thus both point to the merits of a single world currency.

Scottish Journal of Political Economy, 1996

Trends in international finance in recent decades have inspired considerable research on bloc-and band-based international monetary arrangements. From this literature have emerged models providing the basis for much recent work in international monetary economics. To date, however, their application to historical experience has been rare. We therefore highlight parallels between modern-day target zones on the one hand and the classical and inter-war gold standards and Bretton Woods System on the other. We suggest that bloc-based international monetary arrangements are in fact an historical commonplace; they have been the rule rather than the exception. 'This is a shift from the 1970s and 1980s, when empirical models of exchange rate determination and pegged exchange rates as a mechanism for importing policy credibility dominated scholarship. History was not kind to either literature: experience showed monetary models to be incapable of predicting exchange rate behaviour, while the 1992-93 EMS crisis and 1994 Mexican crisis put paid to models of imponed policy credibility. See Meese and Ro off (1983) and Dombusch, Goldfajn and Valdes (1995).

ЗБОРНИК РАДОВА ЕКОНОМСКОГ ФАКУЛТЕТА У ИСТОЧНОМ САРАЈЕВУ, 2018

The growth dynamics of international exchange and capital flows is conditioned by the efficiency of the international monetary system whose basic task is to provide for international liquidity and smooth international payments. The tendencies in international economic relations in the time of globalisation have determined further directions for the development of the international monetary system. The breakup of the Bretton-Woods System initiated the establishment of a new European monetary system with the aim to stabilise the exchange rates and improve further process of integration and international economic relations. In this research paper we have pointed out to the fact that economic interdependence of souvereign countries leads to coordination of macroeconomic policies, and that it can motivate monetary integration within the monetary policy. The objective of this research paper is to emphasize the stability of the international monetary system as a prerequisite for sust...