Jonathan Kirshner - Currency and Coercion: The Political Economy of International Monetary Power

States and their leaders are very sensitive about the sanctity of their money. In England in 1350, counterfeiting the kings gold or silver coinage was declared a crime of high treason punishable by death. In seventh-century China, not only were counterfeiters subject to the death penalty, but their families and neighbors faced a similar fate. In the 1960s, balance-of-payments problems remained a constant worry to John F. Kennedy, then president of the largest and wealthiest economy the world had ever known. What really matters... is the strength of the currency, he once said, in a lighthearted putdown of the importance of nuclear weapons. Britain has nuclear weapons, but the pound is weak, so everyone pushes it around.

This book is about the international political consequences of these concerns. It examines how states can and have used international monetary relations as an instrument of coercive power. International monetary relations refers to arrangements and actions that affect the value, uses, stability, and other attributes of national currencies issued by states. Coercive power refers to the manipulation of these relations by states in order to influence the preferences or behavior of other states. One example of this was the ability of the United States to exploit the weakness of the pound in order to force British withdrawal during the Suez crisis of 1956.

International monetary diplomacy (which will also be called monetary diplomacy, monetary power, and currency power) is a neglected area of study. Scholars of international monetary relations have focused principally on questions of efficiency, cooperation, and distribution. Students of economic statecraft have emphasized trade, aid, and financial relations. This work explores the intersection between these two fields of study.

The general goal of this book is to isolate and examine monetary power. This is not to deny (or ignore) the interrelationships between monetary and other forms of economic diplomacy. Additionally, this study will focus exclusively on the use of monetary power to advance security-related or other non-economic goals. This specifically excludes those attempts to deploy monetary power taken by states that are dominated by concerns for increases in relative or absolute wealth. Once again, there are overlaps here, most obviously in the fact that in the long run it becomes increasingly difficult to distinguish between the pursuit of wealth and the pursuit of power. However, this focus on noneconomic goals does not require that explicit lines of demarcation be identified, or even that they exist. It simply emphasizes one end of the spectrum, where noneconomic goals are dominant. In most cases, the principal concern is clear. For example, in international trade, the same type of economic sanction can be used to advance either primarily security or primarily economic goals. In the first case, an export embargo might be aimed at destabilizing or overthrowing a government, while in the second, it might be used in an attempt to force open foreign markets.

The point of restricting the analysis to cases involving noneconomic goals is to help isolate monetary power. With the focus on security, the variable of interest has a distinctness that would be lost in a tangle of interdependent variables under the more complex settings of international economic bargaining. The emphasis on security also serves the authors view that issues of power and security should be more explicitly integrated into the study of international political economy.

The specific goals of this book are to demonstrate the existence of monetary power and to understand how it works. This involves three major tasks. First is understanding the theory of monetary power: what forms it can take, and how and why it could be effective. Following the establishment of a theoretical framework for analysis, the second task is to establish the existence of monetary power by examining cases where it was employed. These cases will be drawn from episodes involving states from all parts of the world, throughout the twentieth century. Finally, having established the theoretical viability of monetary power and demonstrated its existence, the third task is to understand the nature of monetary power. This inquiry will be pursued along a number of lines, including the ways various forms of monetary power are affected by different international monetary environments (such as fixed versus flexible exchange rates), the sources of the success and failure of the implementation of monetary power, and the factors that lead states to attempt these techniques.