Making monetary mischief: Using currency as a weapon

World Policy Journal

Volumn 24, Issue 4, 2007, Pages 29-38

  Liss, Jodi ^a  

^a USA ^*

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[No Author keywords available]

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EID: 42449148388     PISSN: 07402775     EISSN: None     Source Type: Journal    
DOI: 10.1162/wopj.2008.24.4.29     Document Type: Article

References (41)

1. Benn Steil and Robert Litan, Financial Statecraft: The Role of Financial Markets in American Foreign Policy (New Haven, CT: Yale University Press, 2006), p. 81.
2. Jonathan Kirshner, Currency and Coercion: The Political Economy of International Monetary Power, (Princeton, NJ: Princeton University Press, 1995), p. 269.
3. See also IMF 1953 Staff Paper 8, No. 2 study, p. 17.
4. For a discussion of France's attempts to bolster the CFA franc in order to retain political influence over its former colonies, see David Stasavage, "When Do States Abandon Monetary Discretion? Lessons from the Evolution of the CFA Franc Zone" in Monetary Orders: Ambiguous Economies, Ubiquitous Politics (Ithaca, NY: Cornell University Press, 2003), pp. 79-80.
5. Steil and Litan; Financial Statecraft, p. 149.
6. The United States requires those who trade more than $1,000 a day to register and make weekly or quarterly disclosures, but offshore investment vehicles are not bound by these regulations. See also Edward Chancellor, Devil Take the Hindmost: A History of Financial Speculation (New York: Farrar, Straus & Giroux, 1999), p. 239, for a look at the Asian financial crisis, the troubles of Long Term Capital Management, and financial speculation in general.
7. John De St. Jorre, The Brothers' War: Biafra and Nigeria (Boston: Houghton Mifflin, 1972); and Kirshner, p. 103.
8. Uche Chibuike, "Money Matters in a War Economy: The Biafran Experience," Nationalism and Ethnic Politics, vol. 8, no. 1 (spring 2002), pp. 29-42; and Kirshner, pp. 102-05.
9. Quoted in Kirshner. De St. Jorre (p. 187) calls the currency change "one of the most effective federal moves of the conflict."
10. James Tobin, World Finance and Economic Stability: Selected Essays of James Tobin (Northampton, MA: Edward Elgar, 2003), p. 11.
11. U.S. Bureau of Economic Analysis, March 14, 2007, press release; see also "Sustaining the Unsustainable," The Economist, March 17, 2007.
12. "Currency Competition," The Economist, September 29, 2005.
13. Lawrence Summers, "The United States and the Global Adjustment Process," speech at the Third Annual Stavros S. Niarchos Lecture, Institute for International Economics, Washington, DC, March 23, 2004.
14. Foreign central banks increased their holdings of American treasuries by $2 billion for the year 2005 as opposed to $295 billion the previous year. "Currency Competition," The Economist, September 29, 2005.
15. "A Mecca for Money," The Economist; January 5, 2006;
16. "Recycling the Petrodollars," The Economist, November 10, 2005.
17. Kirshner, p. 47.
18. Brian Ross and Richard Esposito "Bush Authorizes New Covert Action Against Iran," ABC News, May 22, 2007.
19. See Henk-Jan Brinkman, "Financial Sector Reform in and Private Capital Flows to Africa and the Lessons from Asia," discussion paper presented at the U.N. Expert Group Meeting "What Have We Learned One Year Into the Crisis in Emerging Market Economies," organized by UN/DESA, July 17, 1998, in New York, pp. 16-18;
20. Charles Wyplosz, "International Capital Markets Failures: Sources, Costs, and Solutions," Graduate Institute of International Studies, Geneva, and Center for Economic Policy Research (1999), p. 8;
21. see also "South Africa Remains Resilient Despite Selloff in Currency," The New York Times, February 24, 1996.
22. Chancellor, p. 240.
23. Kirshner, ch. 1.
24. For further analysis of the difficulty of accurately predicting these crises, see Morris Goldstein, Asian Financial Crisis: Causes Cures, and Systemic Complications, Policy Analyses International Economics, June 1998, p. 13;
25. Wyplosz, p. 8;
26. and "Financial Crises: Characteristics and Indicators of Vulnerability: An Early Warning System for Emerging Markets," in IMF World Economic Outlook, pp. 88, 94.
27. Paul Krugman, ed., Currency Crises (Chicago: University of Chicago Press, 1999), P- 1.
28. Steven Radelet and Jeffrey Sachs, "The Onset of the East Asian Financial Crisis," Currency Crises (1999), pp. 107-09.
29. Morris Goldstein, Graciela L. Kaminsky, and Carmen M. Reinhart, Assessing Financial Vulnerability: An Early Warning System for Emerging Markets (Washington, DC: Institute for International Economics, 2000) suggest that "warnings of a crisis usually appear 10-18 months ahead," p. 96.
30. Padma Desai, Financial Crises, Contagion and Containment: From Asia to Argentina (Princeton, NJ: Princeton University Press, 2003), p. 265;
31. Paul Blustein and Anthony Faiola, "Argentina Defaults on Debt Payment," Washington Post, November 15, 2002.
32. For more on specific limitations of dollarization, see Jeffrey Frankel, "Panel Presentation: The Asian Model, the Miracle, the Crisis and the Fund," in Currency Crises, p. 336
33. and Felipe B. Larrain and Andres Velasco, Exchanging Exchange Rate Policy in the Emerging Market Economies: The Case for Floating, Essays in International Economics #224 (Princeton, NJ: International Economic Section of the Department of Economics at Princeton University, December 2001), pp. 4-11.
34. Andrea Bubula and Inci Otker-Robe, "Are Pegged and Intermediate Regimes More Crisis Prone?," IMF Working Paper 03/223, Nov. 1, 2003, p. 5. Kirshner also asserts that a fixed rate may give a country more time to act or decide policy in the event of an attack.
35. Barry J. Eichengreen, Globalizing Capital (Princeton, NJ: Princeton University Press, 1998), p. 196.
36. For most developing countries, Eichengreen argues, "volatile exchange rates impose almost unbearable costs and are disruptive to the pursuit of economic goals." See also Felipe B. Larrain and Andres Velasco, Exchange Rate Policy, p. 32.
37. Private sector information from a discussion with Dr. Robin King, Georgetown University, April 13, 2004. For more on growth limitations from Jeffrey A. Frankel, "No Single Currency Regime is Right for All Countries or at AU Times," NBER Working Paper 7338, September 1999, pp. 10-11.
38. For political instability, see Allan Drazen, "Political Contagion in Currency Crises," in Currency Crises, pp. 56-59,
39. and Kirshner, p. 271.
40. In terms of state debt, reserves should be augmented by a 5 percent increase for each percent of current account deficit and 1 percent for each percent the exchange rate is overvalued.
41. However, Ethan Kaplan and Dani Rodrik examined the case of Malaysia and found "Critics of the IMF have argued that the IMF programs in the region aggravated the crisis and exacerbated financial panic. . . Our findings are consistent with this critique. . .the Malaysian policy was more successful in immediately reducing interest rates, stabilizing the currency and stemming financial panic... The turnaround in market confidence was correspondingly more rapid." Ethan Kaplan and Dani Rodrik, "Did the Malaysian Capital Controls Work?" NBER working paper no. 8142, February, 2001, p. 420.