Key Words exchange rates, currency policy, monetary policy, international capital mobility, monetary regimes
n Abstract The structure of international monetary relations has gained increasing prominence over the past two decades. Both national exchange rate policy and the character of the international monetary system require explanation. At the national level, the choice of exchange rate regime and the desired level of the exchange rate involve distributionally relevant tradeoffs. Interest group and partisan pressures, the structure of political institutions, and the electoral incentives of politicians therefore influence exchange rate regime and level decisions. At the international level, the character of the international monetary system depends on strategic interaction among governments, driven by their national concerns and constrained by the international environment. A global or regional fixed-rate currency regime, in particular, requires at least coordination and often explicit cooperation among national governments. INTRODUCTION
The study of international monetary relations was long the domain of economists and a few lonely political scientists. It was routinely argued that, unlike international trade, debt, or foreign investment, exchange rates and related external monetary policies were too technical, and too remote from the concerns of either the mass public or special interests, to warrant direct attention from political economists (Gowa 1988). This was never really accurate, as demonstrated historically by the turbulent politics of the gold standard and more recently by the attention paid to currency policy in small, open economies such as those of Northern Europe and the developing world. But the tedious predictability of currency values under the BrettonWoods system lulled most scholars into inattention (exceptions include Cooper 1968, Kindleberger 1970, Strange 1971, Cohen 1977, Odell 1982, and Gowa 1983).
The collapse of BrettonWoods increased the interest of political scientists in the issue, and in the 1980s, international monetary affairs took so prominent a place in domestic and international politics as to warrant widespread scholarly attention. The 50% real appreciation of the US dollar and the domestic and international firestorm of concern it prompted, dramatic currency collapses in many heavily indebted developing countries, and the controversial attempts to fix European exchange rates all drew researchers toward the topic.
Since 1990, international monetary relations have become extremely prominent in practice, and the study of their political economy has accordingly increased in importance. Exchange rate policies have been at the center of what are arguably the two most striking recent developments in the international economy: the creation of a single European currency and the waves of currency crises that swept through Asia, Latin America, and Russia between 1994 and 1999.
Although most research on the political economy of international monetary relations is relatively recent, it has already given rise to interesting and important theoretical approaches, analytical arguments, and empirical conclusions.We summarize this work without attempting to cover exhaustively a complex and rapidly growing literature. In this section, we outline the analytical problem, delineating the range of outcomes in need of explanation. The next section focuses on one set of things to be explained, the policy choices of national governments, surveying work on the domestic political economy of exchange rate choice. The third section looks at the second set of things to be explained, the rise and evolution of regional and global exchange rate institutions.
Two interrelated sets of international monetary phenomena require explanation. The first is national: the policy of particular governments towards their exchange rates. The second is global: the character of the international monetary system. These two...
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