In This Article History of International Monetary Relations

  • Introduction
  • General Overviews
  • The Decline of British Financial Power
  • The Rise of the United States and the Dollar
  • European Monetary Integration
  • The Politics of Monetary Relations
  • Finance and International Monetary Relations
  • Globalization and Governance

International Relations History of International Monetary Relations
by
Daniel Sargent
  • LAST REVIEWED: 19 May 2017
  • LAST MODIFIED: 24 July 2013
  • DOI: 10.1093/obo/9780199743292-0109

Introduction

Money serves vital economic functions, being a medium of exchange, a store of value, and a unit of account. In the international arena, it poses distinctive challenges. In the absence of a world currency, what kind of money should be used in transactions across national borders? How are the values of national currencies to be defined in relation to each other and how are those values to be sustained over time? International monetary relations encompass the range of institutions, relationships, and habits that enable money to function in the international arena. Difficult technical issues reside at the heart of international monetary relations: These include the adjustment of exchange rates to accommodate imbalances in trade and capital flows and the provision of liquidity to accommodate economic growth. International monetary relations are, at the same time, entwined with power and national interests. The history of international monetary relations can be construed as comprising several distinct phases. In the last decades of the 19th century, an international monetary system based upon the gold standard emerged through imitation and example rather than any act of coherent creation. Suspended during the First World War, the gold standard reemerged in altered form in the mid-1920s. This gold-exchange standard endured only a few years before collapsing in the early 1930s. During the Second World War, the United States led in the construction of a new international monetary system for the postwar world: the so-called Bretton Woods order. It strived to preserve stable exchange rates, which the gold standard had offered, while permitting countries greater scope to pursue autonomous, national economic policies than the gold standard had done. Bretton Woods endured until the early 1970s, when it imploded under the weight of its own contradictions and the corrosive effects of mobile international capital upon the fixed exchange rate system. What emerged thereafter was not a new system but what some have dubbed a “nonsystem” in which aspects of the Bretton Woods order endured but in which floating exchange rates became common. This article is divided into two parts. The first traces the historical evolution of international monetary relations from the gold standard to Bretton Woods and beyond. The second explores key issues in the history of international monetary relations, including the decline of British and the rise of American power, European monetary integration, and the effects of financial globalization on the international monetary order.

General Overviews

These readings provide a mixture of overview and context. Eichengreen 1996 offers the most succinct single-volume introduction to the history of international monetary relations. Besides narrating the monetary system’s evolution from the gold standard to the present day, the author introduces readers to key theoretical issues. By contrast, McKinnon 1996 is organized around key themes and issues, not around a historical chronology. It is, nonetheless, a useful volume, especially for its elucidation of important theoretical debates. Other readings included here provide various other contexts. An accessible history of the international economy in the 20th century, Frieden 2006 is attentive to monetary issues ranging from the gold standard to the breakdown of Bretton Woods. For undergraduates and readers new to the subject, it is an excellent place to start. Providing a different kind of introduction is Volcker and Gyohten 1992. Written by two leading public officials, the authors draw on their personal experiences to present an accessible introduction to the history of post-1945 international monetary relations. Though the coverage in Volcker and Gyohten 1992 is less even than that found in Eichengreen 1996 or Frieden 2006, the first-person perspectives make for engaging reading. Britton 2001 provides not a history of international monetary relations per se but a comparative history of domestic monetary policies in the major market economies. Insofar as domestic and international monetary policies are closely entwined, this volume offers useful context. Finally, Cohen 2000 takes a broader view, situating the concept of international monetary relations in a larger historical context. The idea that all nation-states should have currencies of their own, Cohen argues, is a 19th-century conceit that is now becoming obsolete. With national currencies waning, the future of international monetary relations, he suggests, may be quite different from the recent past.

  • Britton, Andrew J. Monetary Regimes of the Twentieth Century. New York: Cambridge University Press, 2001.

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    Offers an overview of 20th-century macroeconomic developments in Western Europe, North America, and Japan with a focus on monetary policy. More comparative than connective, this volume deals more with the evolution of domestic policy regimes than international monetary relations as such. It provides useful context nonetheless.

  • Cohen, Benjamin. The Geography of Money. Ithaca, NY: Cornell University Press, 2000.

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    An innovative book, this volume charts the evolution of the nation-state’s relationship to money. While “territorial money” became ubiquitous in the 20th century, the close identification of currencies with nation-states, it argues, is now loosening as governments submit to external regimes of monetary discipline that range from currency boards to the euro.

  • Eichengreen, Barry. Globalizing Capital: A History of the International Monetary System. Princeton, NJ: Princeton University Press, 1996.

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    Providing a history of international monetary relations since the 1870s, this is the best single-volume introduction. Covers the gold standard and its demise, Bretton Woods and its legacies, and post-1970s experiments in floating and coordination. Theoretically astute and historically comprehensive, this work sets the standard for the field.

  • Frieden, Jeffry A. Global Capitalism: Its Fall and Rise in the Twentieth Century. New York: W. W. Norton, 2006.

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    An engaging history of the international economy. Befitting the author’s background as a specialist in finance, this volume is especially attentive to international monetary relations. It also provides a background that will enable readers to situate international monetary developments in larger historical contexts—social and political as well as economic.

  • McKinnon, Ronald. The Rules of the Game: International Money and Exchange Rates. Cambridge, MA: MIT Press, 1996.

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    Not for neophytes, this volume provides an introduction to the history and theory of international monetary relations and to one of the field’s leading practitioners. Part 1, on the history, is useful and accessible. Part 2, on currency areas, questions the utility of flexible exchange rates as a means to adjustment.

  • Volcker, Paul, and Toyoo Gyohten. Changing Fortunes: The World’s Money and the Threat to American Leadership. New York: Times, 1992.

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    This volume provides an accessible narrative of international monetary relations since Bretton Woods, coauthored by two policymakers. Based on a seminar that Volcker and Gyohten co-taught, this history is rich with anecdote and insight alike. The Japanese perspective that this book provides is a particular strength.

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