Money and Power in World Politics

Prepared for inclusion in Strange Power, edited by Thomas C. Lawton and Amy C. Verdun (Ashgate Publishing, 2000).

The link between money and power in world politics was one of the most enduring themes in the work of Susan Strange. As she told a young American economist some third of a century ago, freshly arrived in London to write a book on the pound sterling, you can’t talk about international currency without considering the politics involved – a point she went on to demonstrate convincingly with her own magisterial study, Sterling and British Policy (Strange 1971b). (1) Strange well understood that money can be both a source and a target of power in international affairs; a point of contention as well as a means of possible cooperation. Issues of finance or currencies could not be relegated to the “low politics” of technical economics alone. Money is inherently political, an integral part of the “high politics” of diplomacy too. In her words: “In international monetary relations, we have an issue-area that is self evidently part of the international political system” (Strange 1976: 20). A generation ago, such an assertion might have been considered controversial. That today the connection is taken for granted is a measure of Strange’s lasting intellectual influence.

Yet questions remain, involving issues of both theory and praxis. What exactly is the nature of state power in monetary affairs, and how may it change over time? How does money influence the power of states, and vice versa? And what are the consequences of alternative distributions of monetary power for the management of global finance? Strange would be the first to admit that we still lack definitive answers to these critically important questions. The aim of the present chapter, using Strange’s insights as a starting point, is to explore each question in turn, in hopes of developing a more coherent understanding of money’s role in world politics. Issues of theory will be taken up first, then matters of monetary cooperation and governance.

For the purposes of this chapter, following Strange’s lead, money will be understood to encompass all aspects of currency and financial relations – the processes and institutions of financial intermediation (mobilization of savings and allocation of credit) as well as the creation and management of money itself. As she wrote in States and Markets: “The financial structure really has two inseparable aspects. It comprises not just the structures of the political economy through which credit is created but also the monetary system or systems which determine the relative values of the different moneys in which credit is denominated” (Strange 1994: 90). World politics, on the other hand, will be defined less expansively, to encompass here only relations between states or state-sponsored organizations (like the International Monetary Fund): the traditional stuff of international diplomacy. Admittedly, with the resurrection of global financial markets in recent decades, this fails to tell the whole story (Cohen 1996, 1998). As Strange herself stressed in much of her later work, (2) the politics of money has now expanded to include a multitude of private as well as public-sector actors. But so long as states remain the basic unit of formal governance throughout the world, inter-state relations clearly will continue to be a fundamental part of the story and well worth exploring on their own. The shifting balance of power between states and markets in monetary affairs, though relegated to the wings here, will move to center stage in the next two chapters of this volume.


Money was literally the alpha and omega of Susan Strange’s lifetime corpus of scholarship – the subject of her first book, Sterling and British Policy (Strange 1971b), as well as of her last, Mad Money (Strange 1998). In between came two other major financial studies: a detailed and comprehensive history of international monetary relations from 1959 to 1971, which appeared in 1976, and Mad Money‘s noted predecessor, Casino Capitalism, published ten years later. Currency and financial issues also figured prominently in States and Markets (Strange 1994) and in several shorter papers (Strange 1971a, 1975, 1983b, 1985, 1990; Calleo and Strange 1984). The politics of money, it is safe to say, was never very far from her thoughts.

Not surprisingly, some of her thinking showed significant change over time, reflecting the evolution of real-world events as well as her own steep learning curve. Most noticeable was her gradual shift from the state-centric perspective of her early work to a greater emphasis on non-state actors, as capital markets revived and the pace of financial globalization accelerated. During the 1970s her principal emphasis was on inter-state relations and the diplomacy of monetary negotiations. In this respect she was no different from most other specialists at the time, who also treated governments as the main actors involved. (3) Market forces, insofar as they were considered at all, entered analysis as little more than a vexing constraint or complication for policymakers. More quickly than most others, however, she came to recognize the fundamental tranformation being wrought by the reintegration of national financial markets and rapid increase of cross-border capital mobility. (4) By 1986, in Casino Capitalism, she was already expressing concern about “an international financial system in which the gamblers in the casino have got out of hand, almost beyond, it sometimes seems, the control of governments” (Strange 1986: 21). By 1998 she was convinced that the casino had gone crazy. “The financial markets,” she wrote in Mad Money, have “run beyond the control of state and international authorities” (Strange 1998: 1).

In a more fundamental sense, however, her thinking was remarkably consistent, stressing key themes over and over again in a variety of analytical contexts. Four themes, in particular, stand out.

First was the inherently political nature of money. “No working politician,” Strange wrote, “needs to be reminded of the political nature of monetary policy… Decisions concerning the management of money substantially affect other matters of great political sensitivity (Calleo and Strange 1984: 91). More succinctly, “the management of credit is necessarily highly political” (Strange 1985: 39, emphasis supplied). The basis of her view was historical, noting that with the transition from primitive to developed financial structures increased demands were placed on governments “for the imposition of complex and precise rules to govern the operation of credit institutions and money markets” (Strange 1994: 97). The result, she felt, was an “inseparability of money from politics” (Strange 1976: 20), not only at the domestic level but also, more to the point, at the international level where governance structures are so much more ambiguous. From the beginning her scholarship was motivated by an almost missionary-like zeal to highlight “the political element” that she saw as “the missing component in much current discussion of international financial and monetary issues” (Strange 1971a: 216). Monetary management, she insisted, was inevitably “bound up, in large part, with what might be called the ‘foreign policy’ of money” (Calleo and Strange 1984: 91).

A second theme, following logically from the first, was the connection of money to power, with the arrow of causation running in both direction. If money was inseparable from politics, so too was the politics of money inseparable from considerations of power — particularly at the international level, where “relationships between states are ultimately decided by relative power” (Strange 1971b: 39, emphasis supplied). Power was both the cause and the effect of monetary outcomes.

In Sterling and British Policy, for example, Strange distinguished four types of international currency: Top Currencies, Master Currencies, Negotiated Currencies, and Neutral Currencies (Strange 1971b; also 1971a). Power entered her analysis as both causal variable and consequence. Economic and political influence, she averred, was critical in determining what moneys would qualify for any of these roles — the “power factor affecting an international currency,” as she put it (Strange 1971b: 38). The power derived from an international currency, in turn, could also be used to exercise political leverage over others — and most likely would be. In her words: “It is highly probable that any state economically strong enough to possess [an international currency] will also exert substantial power and influence. The rich usually do” (Strange 1971a: 222). The “foreign policies” of money would inevitably reflect how much power is possessed by each individual actor. Likewise, the structure of the monetary system as a whole will reflect “the general world balance of political and economic power…. the relative power of states” (Calleo and Strange 1984: 99).

A third theme, in turn, concerned that general world balance and what it might look like. Strange assumed that the distribution of power in monetary affairs would almost certainly be highly asymmetric, with a small number of states enjoying a disproportionately large share of influence. For her, there was no doubting “the reality of the inequality of power” (Strange 1976: 20). The global system was bound to be distinctly hierarchical, with control concentrated for better or worse in a “small oligarchy of monetarily important states” (Strange 1976: 22) — the “affluent alliance,” as she called it in her usual colorful fashion (Strange 1976: 23).

Hierarchy was an obvious feature of her early analysis of international currencies (Strange 1971a, 1971b). It was also evident in her later discussions of global monetary management, which always laid stress on the desirability of effective collective action by the most powerful nations. No reform of casino capitalism was possible, she contended, “beyond the limits of what is conceivably acceptable to the chief governments of leading states” (Strange 1986: 149). Money has become mad because “the political foundations for international financial cooperation are weaker today than they were in the 1970s and 1980s” (Strange 1998: 43). Hierarchy implied privilege in her view, but also a measure of responsibility.

A final theme involved the United States, my own country, which Strange always regarded with a jaundiced mix of admiration and resentment. America, she insisted, was clearly primus inter pares, even within the affluent alliance and even where others perceived hegemonic decline. The dollar was Top Currency – “the choice of the market” (Strange 1971b: 5) — and the U.S. was “lead player… long accustomed to a dominant position” (Strange 1976: 43). Rumors of the demise of America’s “non-territorial empire…the likes of which the world has never seen before” (Strange 1988: 13), particularly rampant in the 1970s and 1980s, were simply wrong – a “myth of lost hegemony” (Strange 1987). Those who subscribed to the myth were misled by “a rather narrow (and old-fashioned) understanding of power in world politics” (Strange 1985: 11). Even in the 1990s the U.S. remained “the leading country of the world market economy” (Strange 1994: 115). In an age of increasingly mad money, only America retains “the power if anyone has to reverse the process and tip the balance of power back again from market to state” (Strange 1990: 266).

But for Strange there was a problem — the fact that America too often acts “in exactly the opposite way to that of a responsible hegemon” (Strange 1994: 115), “guided by its own rather narrow view of national interest” (Calleo and Strange 1984: 117). In principle, the U.S. should “recognize its own true long-term national interest in exercising a wise hegemony over the world market economy” (Strange 1986:171). In practice, it is more likely that others will have “no other alternative [but] to submit to a measure of tyranny by the most powerful and ruthless member of the affluent alliance” (1976: 358). Strange did not exactly hate us Yanks, but she did find our behavior a bit intolerable at times.


Three decades after her first book, these four themes of Strange’s no longer seem particularly controversial. Indeed, it would be difficult to find any serious scholar today who would not agree that money is political; that power is both a cause and an effect of monetary outcomes; that the distribution of power in monetary affairs is distinctly unequal; and that the United States remains the most powerful of all states. Yet, as indicated, questions remain for further exploration. We begin at the level of theory. What do we mean by monetary power, where does it come from, and how is it used?

The meaning of power

At its simplest, power in inter-state relations may be defined as the ability to control, or at least influence, the outcome of events. Two dimensions are important, internal and external. The internal dimension corresponds to the dictionary definition of power as a capacity for action. A state is powerful to the extent that it is insulated from outside influence or coercion in the formulation and implementation of policy. A common synonym for the internal dimension of power is “autonomy.” The external dimension corresponds to the dictionary definition of power as a capacity to control the behavior of others; to enforce compliance. A state is also powerful to the extent that it can influence or coerce outsiders. Such influence need not be actively exercised; it need only be acknowledged by others, implicitly or explicitly, to be effective. It also need not be exercised with conscious intent; the behavior of others can be influenced simply as a by-product of “powerful” acts (or potential acts). A common synonym for the external dimension of power is “authority.”

Of most interest to students of international monetary affairs is the external dimension: the authority that one state can exert over others. Yet apart from Strange herself, remarkably few scholars have even tried to explore monetary power in formal theoretical terms. In the contemporary era, Charles Kindleberger offered a few pioneering observations in his early essay on Power and Money (Kindleberger 1970); and a few years later I added some thoughts of my own in Organizing the World’s Money (Cohen 1977). But as Jonathan Kirshner has written most recently, the topic is in fact “a neglected area of study” (Kirshner 1995: 3). Theory calls for a reasonably parsimonious and well specified set of propositions about behavior – statements that are both logically true and, at least in principle, empirically falsifiable. In that sense no true theory of monetary power may be said, as yet, to exist.

Kirshner’s own effort, Currency and Coercion (Kirshner 1995), stands for now as the definitive work on the subject. But even his effort, though praiseworthy, is not without limitations. Kirshner claims to present a general theory of monetary power — in his words, “a general framework regarding the nature of monetary power, how it works, and when it will be successful” (Kirshner 1995: 20). In reality, however, his book offers less a theory than a handy taxonomy of many of the diverse ways that money can be used in inter-state relations as an instrument of coercion. Three broad categories of monetary power are distinguished – currency manipulation, referring to initiatives taken to affect the value and stability of target currencies; monetary dependence, involving efforts to create and exploit a sphere of influence; and systemic disruption, encompassing actions directed at specific international monetary systems or subsystems. Each category in turn is divided into several more narrow subcategories, all bearing cleverly alliterative labels. Currency manipulation, for instance, may be protective, permissive, predatory, or passive. Monetary dependence may be exploited through enforcement, expulsion, extraction, or entrapment. Systemic disruption may be strategic or subversive.

Currency and Coercion is a goldmine of information. Kirshner provides a wealth of data in a wide range of historical case studies. But that is not the same thing as theory, which would offer us rigorous, abstract reasoning about either the sources or the uses of monetary power. A general theory would tell us something about the specific conditions that give rise to power in monetary affairs. It would also advance a coherent set of theses to explain when, how, and why any given form of monetary power might be used in particular circumstances. Currency and Coercion, regrettably, does neither.

Nor, we must acknowledge, did Strange, however insightful her many contributions. Strange’s approach too tended to the taxonomic – for instance, in her “political theory of international currencies” (Strange 1971a, 1971b) with its four basic types: (1) Top Currency — the currency of the predominant state in the international system; (2) Master Currencies – currencies that emerge when an imperial power imposes use of its money on political dependencies; (3) Negotiated Currencies – what Master Currencies become when the dominance of the imperial power begins to wane; and (4) Neutral Currencies – currencies whose use originates in the strong economic position of the issuing state. Strange certainly did not ignore matters of either causation or consequence. But beyond some cursory allusions to the broad “power factor” behind international currencies along with some brief comments on their potential leverage, little systematic detail is offered about, for example, what could determine shifts into or out of each category or about how and when each type might be used to an issuing country’s advantage. In fact, there is not much here at all that would genuinely qualify as theory in the usual sense of the term. (5)

The same is also true of her most ambitious attempt to tackle the issue of power in the global economy: her landmark States and Markets, first published in 1988 (second edition, 1994). Traditional studies of world politics — the “narrow (and old-fashioned) understanding of power” that Strange so vigorously criticized (6) – had mostly tended to identify power with tangible resources of one kind or another: territory, population, armed forces, and the like. But in economic affairs, Strange correctly noted, what matters most is not physical endowments but rather structures and relationships – who depends on whom and for what. Hence power could be understood to operate at two levels, structural and relational. Relational power, echoing more conventional treatments in the IR literature, is the familiar “power of A to get B to do something they would not otherwise do” (Strange 1994: 24). Structural power, the main theme stressed in this volume, is “the power to shape and determine the structures of the global political economy…. the power to decide how things will be done, the power to shape frameworks within which states relate to each other” (Strange 1994: 24-25). Four key structures are identified: security, production, finance, and knowledge. Of most direct relevance here of course is the financial structure: “the sum of all the arrangements governing the availability of credit plus all factors determining the terms on which currencies are exchanged for each other” (Strange 1994: 90).

Strange’s distinction between relational and structural power is critical, even inspired. (7) In the crudest terms, one refers to the ability to gain under the prevailing rules of the game, the other to the ability to gain by rewriting the rules of the game. Yet here too there is little that could genuinely be described as theory. Strange’s discussion is essentially descriptive, offering a rich array of illustrations and historical narrative. What it lacks is a formal, systematic analysis of either the sources or determinants of use at either level of operation.

Towards a general theory

Can we do better? Though space considerations prevent a more comprehensive treatment, a few suggestions are possible. Start with Strange’s distinction between relational and structural power. In fact, the distinction was not new, having roots that go back to early theorizing by Robert Keohane and Joseph Nye about the implications of growing interdependence in the postwar world economy (Keohane and Nye 1973, 1977). States, Keohane and Nye noted, were becoming increasingly intertwined — hence each was becoming more and more dependent on others in all sorts of issue-areas, economic or otherwise. Mutual dependence, however, was rarely symmetrical. Opportunities were therefore created for less dependent states to manipulate existing relationships to their own advantage. In the global system as a whole, Keohane and Nye concluded, it is possible “to regard power as deriving from patterns of asymmetrical interdependence between actors in the issue-areas in which they are involved with one another” (Keohane and Nye 1973: 122). The basic question, in simplest terms, was: Who needs whom more? Power could be understood to consist of a state’s control over that for which others are dependent on it. (8)

In addition, Keohane and Nye suggested, interdependence between states has two important dimensions: sensitivity and vulnerability. Sensitivity interdependence involves the responsiveness of interrelationships – the degree to which conditions in one state are affected positively or negatively by events occurring elsewhere. Vulnerability interdependence involves the reversibility of interrelationships – the degree to which (in other words, the cost at which) a state is capable of overriding the effects of events occurring elsewhere. A state is “sensitive” if it is unable to avoid outside influence within the existing framework of transactions and policies. A state is “vulnerable” if it is unable to reverse the outside influence except at very high cost to itself.

The sensitivity-vulnerability dichotomy has subsequently been criticized for a certain vagueness about the time scale involved. Plainly, the longer the period allowed for adjustment, the less clear is the difference between the two dimensions of interdependence. Yet the distinction retains analytical relevance because of its direct correspondence to the levels of relation and structure stressed by Strange. Sensitivity interdependence is clearly pertinent to analysis of state power at the relational level, where the transactional and policy framework is well established and generally accepted; while vulnerability interdependence is obviously of direct relevance to the structural level – to analysis of such questions as how governance frameworks are established and how they may be altered over time. In other words, they provide an opening for a more rigorous formulation of Strange’s distinction between relational power and structural power.

Suppose then that we think of the monetary system as a vast web of asymmetrical interdependencies, all operating within an established framework of norms, rules, and decision-making procedures. Power at the relational level may be understood to be a direct function of the degree of asymmetry in specific transactional relationships. The greater the asymmetry, the more incentive the less dependent state has to seek to extract advantage within the established framework (in game-theory terms, to seek its most preferred outcome within the existing payoff matrix). Power at the structural level may be understood to be a direct function of the cumulative total of asymmetrical relationships. The greater the number of asymmetries that favor one country, relative to those that disfavor it, the more structural power it will have; and the more structural power it enjoys, the more incentive it has to seek to extract advantage by favorably modifying the existing framework (in game-theory terms, to favorably restructure the payoff matrix).

The task of theory would then be two-fold: to identify the key conditions that determine, first, when power at either level is or is not likely to be used (i.e., when the incentive will or will not be acted upon); and second, when the use of power is or is not likely to be successful. Conditions may be both economic and political; they may also be domestic as well as international, cognitive as well as material – all making for a dense, indeed daunting, complexity. Any scholar talented enough to accomplish the task will deserve the title of the next Susan Strange.

Some illustrations

A theory of monetary power formulated along these lines would have several advantages – not least, the promise of greater understanding of the way states actually behave in the real world. As in most areas of social science it would be foolhardy to aspire to anything so ambitious as a rigorous forecasting model, which is surely beyond our capacities. Social scientists, someone once quipped, were invented to make even weather forecasters look good. But it is not unrealistic to aspire to a higher degree of practical insight: greater sensitivity to the precise variables and factors that matter most in monetary affairs and to the way they relate and interact over time. Even if theory cannot clarify the future, it can surely help to clear the mind.

Another advantage of a theory formulated along these lines is that it can be constructed to build on, rather than reject or ignore, past contributions of Strange and others. Consider, for instance, Strange’s taxonomy of international currencies: Top, Master, Negotiated, and Neutral Currencies. Strange certainly was not the first scholar to note the element of hierarchy among the world’s moneys, as she readily acknowledged. Economic historians had frequently remarked on the persistent tendency, in every epoch, for one or a small number of currencies to emerge as dominant in monetary relations: the Athenian drachma in the classical world, later the Byzantine gold solidus — the “dollar of the Middle Ages,” as one source put it (Lopez 1951) — the Florentine florin, the Venetian ducat, the Dutch guilder, the Spanish-Mexican silver peso, and of course, most recently, the pound sterling and U.S. greenback. (9) In the contemporary era, elevated status was affirmed by such labels as “key currencies” (10) or even “dream currencies” – the moneys that investors dream in (Brown 1978). But Strange was the first to differentiate systematically among the currencies at the peak of what I have elsewhere called the Currency Pyramid (Cohen 1998), calling attention to the fact that both causal factors and political consequences may vary significantly, depending on circumstances. In her own words:

We should try to distinguish between the main types of situation, or sets of circumstances, in which a currency issued by one state comes to be used [by others]…. All of them have political consequences… In some cases this pressure is strong and pervasive, in others it is weak, and intermittent (Strange 1971b: 3-4).

An approach focusing on relational asymmetries would help accomplish Strange’s objective. Her four currency categories, as well as the strength or weakness of pressures associated with each, can each be understood to result from distinctly different patterns of transactional and policy relationships. The challenge is to be provide more systematic detail about what those relationships are.

Neutral Currencies are perhaps the easiest to account for, being entirely economic in origin. Strange cited as examples the Swiss franc and the Deutschmark (now being replaced by the euro). Three asymmetries in particular have long been emphasized by economists as critical to encouraging widespread confidence in such currencies: (1) a proven track record of low inflation and (2) well developed banking or capital markets, both of which make a money attractive for store-of-value purposes; and (3) an economy that is large and well integrated into world markets, which makes the money attractive for medium-of-exchange purposes as well (Cohen 1998: 96-97). Add dominance of related networks of interdependencies – Strange’s security, production, and knowledge structures – and one money emerges as the Top Currency of its period. Master Currencies require only one special form of asymmetry: a political dependency sanctioned by international law.

The approach can also be used to explain shifts into or out of each category, all of which are analyzable in terms of changes in any of those same economic or political asymmetries. Master Currencies, for instance, morph into Negotiated Currencies when political dependency is terminated, resulting in a need to bargain diplomatically with users about the terms and conditions of use. (11) More generally, monetary specialists have addressed much attention to the problems posed for a Top (or even Neutral) Currency as global circulation expands. Eventually a significant “overhang” of liabilities develops that will almost certainly erode the issuing country’s insulation against outside influence as it grows increasingly dependent on the good will of foreign holders. The asymmetry will become even more pronounced to the extent that rival moneys begin to emerge as potential substitutes for the threatened currency. Theory need not be limited to comparative statics alone.

In similar fashion, consider Jonathan Kirshner’s taxonomy of monetary power: currency manipulation, monetary dependence, and systemic disruption. Though presented as if they were qualitatively different, the three categories really are distinguishable simply by the type and direction of asymmetries implied by each. Currency manipulation requires only an asymmetry of sensitivity in the single issue-area of exchange rates. Economies that are relatively closed, rather than open, are less vulnerable to currency instability; so too are countries with payments surpluses rather than deficits, with large central-bank reserves rather than small, or with external borrowing capacity that is substantial rather than limited. Monetary dependence requires any of the same conditions that create Strange’s Neutral, Top, or Master Currencies; while systemic disruption bears a family resemblance to her category of Negotiated Currency, where the tables have turned sufficiently to give some degree of leverage to the formerly dependent. The reversal of asymmetry may be political – the end of empire – or it may be economic, the result, for instance, of a growing overhang of liabilities. Thomas Schelling (1980) has written of the advantages to be derived from a strategy of “rocking the boat” — destabilizing behavior purposively designed to extract substantive concessions. Though they may be incapable of offering their own substitute for a dominant currency, smaller players may be able to use the threat of liquidation or withdrawal to gain valuable bargaining leverage. Such tactics, as Kirshner notes, have been a particular specialty of France over the years, both during the interwar period, when its target was Britain’s pound, and during the Bretton Woods era, when the dollar’s “exorbitant privilege” was at issue. (12)

In brief, we can do better. The keys to a more general theory are available. Will the next Susan Strange please stand up?


Strange of course also had much to say about the praxis of monetary relations, focusing especially on issues of governance in the international monetary system. Scholars in the realist tradition of IR theory could readily identify with her emphasis on the role of power in this context. For her, control was naturally — if regrettably — concentrated in a small group of powerful nations in general and in one powerful country, the United States, in particular. If global management was unenlightened or inconsistent, it was mainly because the “affluent alliance” failed to live up to its collective responsibilities. But this too leaves important questions unanswered. What precisely do we mean by governance in monetary affairs? Are the powerful necessarily irresponsible? And what is the proper way to understand America’s role at the center of the monetary system?

The meaning of governance

Reduced to its essence, governance is about rules – how rules are made for the allocation of values in society and how they are implemented and enforced. Rules may be formally articulated in statutes or treaties outlining specific prescriptions or proscriptions for action. Or they may be expressed more informally, as implicit norms defining behavioral standards in terms of understood rights and obligations. Either way, what matters is that they exercise some degree of authority: some degree of influence over the behavior and decisions of actors. The rules of the game rule.

And who makes the rules? Power certainly figures prominently, as Strange insisted. A capacity for coercion is often the sine qua non for effective control of outcomes. But power per se, whether naked or cloaked, is by no means the only possible source of authority in social relations. In principle, the concept of authority falls somewhere between the contrasting modalities of coercion (the capacity for repressive violence) and persuasion (the capacity for reasoned elaboration) and is identical with neither. In the words of philosopher Hannah Arendt: “If authority is to be defined at all, it must be in contradistinction to both coercion by force and persuasion by argument” (Arendt 1968). In practice, therefore, authority may arise from a variety of sources, not just power. These would also include tradition and charisma, the two alternative foundations stressed by Max Weber (1925); they might include as well religion, ideology, or even mere intellectual convention. The key point is that authority, ultimately, is socially constructed – not handed down by the mighty but built up from our own ideas and experience. The strong undoubtedly have disproportionate influence, but only in the anarchy of the jungle do they exercise untrammeled dominion.

As a social construction, governance does not necessarily demand the tangible institutions of government. It may not even call for the presence of explicit actors, whether state-sponsored or private, to take responsibility for rule-making and enforcement. To suffice, all that is really needed is a valid social consensus on relevant rights and values — a legitimate social institution, in short. As the political philosopher R.B. Friedman has written, the effectiveness of authority is derived from “some mutually recognized normative relationship” (Friedman 1990: 71). Its legitimacy is based on historically and culturally conditioned expectations about what constitutes appropriate conduct. A practical distinction between societal orders based on formal design and organization (e.g., the state) and more spontaneous orders that emerge naturally from the mutual accommodations of many diverse and autonomous agents has long been a staple feature of Western social philosophy, going back to Bernard Mandeville’s Fable of the Bees, first published in 1714. The unplanned spontaneous model may be regarded as no less legitimate — no less authoritative — than the deliberately devised variety.

As a social institution, governance in an issue-area like money thus may be founded on any one of four basic organizing principles. As I have written elsewhere (Cohen 1977), these are:

(1) Automaticity – a self-disciplining structure of rules and norms that are binding for all states.

(2) Supranationality – a structure founded on collective adherence to the decisions of some autonomous international organization;

(3) Hegemony – a structure organized around a single dominant country or a small group of dominant states with acknowledged leadership responsibilities (as well as privileges).

(4) Negotiation – a structure of shared responsibilities and decision-making.

Each of these four principles represents a theoretical limiting case. In practice, no single one among them has ever dominated monetary relations for long. Rather, as the global system has evolved, two or more principles have been pragmatically combined in various ways in search of an effective mode of governance. In the classical gold standard, for example, where every participating government was expected without question to buy and sell gold at a fixed price and to allow free import and export of gold, automaticity was clearly privileged, though not without elements of hegemony and negotiation as well. The system was distinctly hierarchical, with Britain at its peak, and there was also a considerable amount of cooperation among the major central banks. After World War I, by contrast, as the gold-standard “rules of the game” were abandoned and Britain’s financial dominance gradually eroded, greater emphasis was placed on formal negotiation to maintain some degree of monetary stability – unsuccessfully, as it eventually turned out. Then came the Bretton Woods system, which was explicitly designed to combine automaticity, supranationality, and cooperative negotiation in equal measure, but which in reality rested heavily on American hegemony. And then, finally, in the early 1970s came the breakdown of Bretton Woods, which once again led to abandonment of many of the prevailing rules of the game — most importantly, the dollar’s convertibility into gold and the par-value system of exchange rates. For many, including Strange, the result ever since has been “an unstable and inequitable international monetary system” (Strange 1985:15) dominated by “America’s international hegemony” (Calleo and Strange 1984: 114).

Strange was undoubtedly right to stress the prominent role of power, especially structural power, in monetary governance. When it comes to relations among sovereign states, power is always a critical factor in shaping behavior. But she surely exaggerated in stressing only power as an effective source of authority, when it is clear that international relations have moved so far beyond the elemental law of the jungle. Strange tended to discount the role of social institutions in world politics. In her memorable “Cave! Hic Dragones” (Strange 1983a), she dismissed the notion of international regimes as little more than a “passing fad” of American social scientists. Her preference was to think instead in terms of what she termed a “network of bargains” (Strange 1994: 39): overt or tacit agreements that are “the subject of a continued bargaining process” (1975: 219). But does this not seriously underestimate the degree of continuity in global structures? If the world truly were reinvented on a daily basis, the balance of power would naturally dominate, if not dictate, outcomes. In reality, however, Stephen Krasner’s metaphor of tectonic plates (Krasner 1983) seems more apt – an image of much more stable social institutions, yielding to the pressures of power, if at all, only slowly and over considerable intervals of time. It is in those intervals that we see the force of other sources of authority.

In the durability of the International Monetary Fund, for example, we see the force of both automaticity and supranationality despite the many changes that have occurred since the 1960s. The U.S. gold window may now be closed, exchange rates may no longer be pegged, and, with re-emergence of global financial markets, deficit countries may no longer rely as heavily on the Fund as a source of international liquidity. Yet the authority of the organization and of the many rules written into its Charter persists to ensure a measure of effective governance. Likewise policymakers continue, for the most part, to respect commonly agreed standards of behavior – e.g., that states should not engage in mutually destructive competitive devaluations – demonstrating the force of learning as well. Admittedly, the quality of today’s monetary management is hardly all it could be; and the leading states certainly exercise disproportionate influence over decision-making, both within and outside the IMF. But that is not the same thing as the law of the jungle. Rule-making and enforcement do not reduce to a simple equation of power.

The challenge of cooperation

Can the quality of today’s monetary management be improved? Here, plainly, Strange was right to stress the central role of the most powerful. Reform of any kind requires leadership, and leadership comes most naturally to the strong. At issue is the challenge of cooperation: the ability of the “affluent alliance” to mount effective collective action in the common interest. The question is why the leading financial powers find it so difficult to live up to their responsibilities.

For Strange the answer was, in simplest terms, selfishness: governments seek to exploit their power whenever possible in pursuit of narrow national interest. And there is no doubt more than a kernel of truth in that point of view. But in this regard too Strange surely exaggerated in stressing only selfishness as a determining variable. The story is really much more complicated than that.

To begin, even unalloyed selfishness does not necessarily assure uncooperative behavior, as any student of game theory would readily confirm. Monetary relations are a form of strategic interaction in which each player obviously does have an incentive to maximize payoffs at the expense of others. The logic of self-interest is clear. As Robert Axelrod (1984) has demonstrated, however, rational calculation will result in uncompromising selfishness only in single-play games where players need have no concern about longer-term consequences. In iterated games, by contrast, where the risk of costly retaliation by others is high, players have more incentive to cooperate to ensure higher cumulative gains. In Axelrod’s words: “The future can… cast a shadow back upon the present and thereby affect the current strategic situation” (Axelrod 1984: 12). In monetary relations, where the “shadow of the future” is particularly long, uncompromising selfishness may not pay at all.

Furthermore, not all games are the same. Recall Arthur Stein’s distinction between “dilemmas of common interests” and “dilemmas of common aversions” (Stein 1990). The more challenging of the two are dilemmas of common interests, conflictual games, where reciprocal concessions must be made to avoid sub-optimal (“Pareto-deficient”) outcomes. Effective collective action in such situations may indeed be difficult to achieve or sustain. But many situations involve no more than dilemmas of common aversions, coordination games, where the issue is just to avoid a particular outcome; and, hence, where the only question is how to establish a common focal point around which behavior may coalesce. Beyond agreeing to play by some standard set of rules (e.g., driving on the right-hand side of the road), no compromise of underlying preferences is called for. The difference between the two classes of dilemma is reflected in the distinction economist Peter Kenen draws between two types of monetary cooperation — the “policy-optimizing” approach, where governments seek to bargain their way from sub-optimality to something closer to a Pareto optimum; and the “regime-preserving” or “public-goods” approach, where mutual adjustments are agreed for the sake of defending existing arrangements or institutions against the threat of economic or political shocks (Kenen 1988). The latter is clearly less demanding than the former.

Happily, many of the issues involved in monetary governance actually are more in the nature of coordination games, where “regime preservation” rather than “policy optimization” is at stake. Certainly this is evident in the area of international banking regulation, as Ethan Kapstein has shown (Kapstein 1994). Every state shares a common interest in ensuring prudent behavior by banks, owing to their central role in the operation of the payments system. Likewise, at a broader macroeconomic level, experience testifies amply to the willingness of governments to act together effectively when broader collective goals appear at risk — e.g., the Plaza Agreement of 1985, the joint response to the stock-market crash of 1987, and the coordinated rescue packages mounted for Thailand and other Asian countries in 1997-98. Narrow self-interest clearly does not always dominate in the calculations of policymakers.

Indeed, much depends on what one means by cooperation. Consider, for example, the argument of Michael Webb (1995), who questions the view of Strange and others that policy coordination has weakened in recent years. Rather, he contends, it is the form of monetary cooperation that has changed. Earlier in the postwar period, collective action consisted largely of “external” measures (e.g., balance-of-payments financing and exchange-rate coordination) designed to manage payments imbalances caused by incompatible national macroeconomic policies. Today, by contrast, cooperation encompasses the direct coordination of national monetary and fiscal policies themselves – policies that had previously been considered strictly “internal.” And what accounts for this shift in the form of cooperation? The explanation, Webb asserts, is to be found in the massive increase of capital mobility that has occurred in recent decades — Strange’s mad money. Controversially, Webb contends that financial globalization has actually increased the degree of effective cooperation by making it virtually impossible for governments to pursue significantly divergent macroeconomic policies. This is a position diametrically opposed to Strange’s more pessimistic interpretation.

Not that cooperation is therefore always assured. Even in coordination games, let alone conflictual games, discord is possible, as Richard Cooper (1975) long ago pointed out. Cooper listed five possible sources of disagreement among states on monetary issues: (1) different preferences regarding the distributional implications of alternative decisions; (2) different weights attached to alternative policy targets when compromises (trade-offs) must be made among values; (3) different national economic circumstances, even when policy preferences are similar; (4) disagreement over the practical effectiveness of alternative instruments to achieve agreed objectives; and (5) uncertainty about the trustworthiness of other states. All five reduce the chances that cooperation will endure indefinitely and help account for the seemingly episodic quality of collective management efforts. As I have written before, monetary cooperation, like passionate love, is self-evidently a good thing but difficult to sustain (Cohen 1993: 134). But that is not the same thing as attributing all failure to selfishness, a charge that borders on caricature (in love as well as in monetary affairs).

America‘s role

Finally there is the question of America’s role in monetary affairs, to which Strange always attached absolutely vital importance. “Nothing,” she wrote, “happens unless the United States leads” (Strange 1983b: 179). Does this means that Strange fully subscribed to the familiar old theory of hegemonic stability?

Hegemonic stability theory, which originated in the writings of Charles Kindleberger (1973), Robert Gilpin (1975), and Stephen Krasner (1976), has long fascinated students of international political economy. Its central tenet, as summarized by Robert Keohane, is that “hegemonic structures of power, dominated by a single country, are most conducive to the development of strong international regimes whose rules are relatively precise and well obeyed” (Keohane 1980: 132). (13) In other words, hegemony is critical to effective governance, whether in monetary relations or other dimensions of the world economy, and may even be necessary. Subsequent debate, ably surveyed by David Lake (1993), has focused in particular on the role of hegemony – or “leadership,” as Lake prefers to label it — in “producing” the “international economic infrastructure” needed for stability. Following Kindleberger (1973) that infrastructure, a form of public good, is assumed to include a stable medium of exchange and store of value and adequate liquidity for both long-term development and short-term crisis management: essentially all the components of what Strange called the financial structure. Leadership, in turn, is assumed to be either benevolent or coercive. As Lake explains the difference:

When benevolent, the leader provides the international economic infrastructure unilaterally, or at least bears a disproportionate cost of providing the public good, and thereby gains relatively less than others. When coercive, the leader forces other, smaller states to contribute to the international economic infrastructure and, at an extreme, to bear the entire burden (Lake 1993: 467).

Strange can be best understood as a regretful advocate of a coercive version of hegemonic stability theory. More than once she expressed the wish that America, with its unparalleled capabilities, would somehow find the will to live up to its leadership responsibilities. “Reform must start with a change of mind in Washington,” she wrote in Casino Capitalism (Strange 1986: 170). The challenge is “to see how to persuade people and politicians in the United States to use the hegemonic, structural power they still have in a more enlightened and consistent way” (Strange 1990: 274). But she was not hopeful.

Quite the contrary in fact. America talked the talk but didn’t walk the walk. In Strange’s words: “It is hard to see American liberalism in the twenty-five years after World War II as a genuine doctrine rather than as an ideology, that is, a doctrine to be used when it was convenient and fitted the current perception of the national interest and one to be overlooked and forgotten when it did not” (Strange 1987: 562). If Americans talked about the desirability of policy coordination, it was little more than “an unconscious form of American imperialism… a remedy that allows Americans to do as they please while others do as they are told” (Strange 1986: 153). All of Washington’s financial initiatives “have reflected a basic urge to dominate the monetary system so that external constraints may not limit the American political economy’s expansive impulses, at home or abroad…. [Policy] results less in a dutiful management of the collective economic interest than in a nationalist exploitation of power” (Calleo and Strange 1984: 114).

Is America truly so irresponsible? Here, yet again, Strange surely exaggerated. That U.S. policies are nationalistic is of course undeniable, as I have written elsewhere (Cohen 1980). In this respect America is no different from other countries, all of which act first and foremost out of an instinct for self-interest. But are U.S. policies only nationalistic? Is American leadership only exploitative? The answers to those questions are not quite so simple.

Certainly the nationalistic element of U.S. policy is easy to see. Washington has always displayed a distinct preference for a maximum of autonomy in monetary affairs. Such a bias is also easy to understand, given America’s overweening size and authority as well as its still relatively high degree of economic insularity. But for those very same reasons nationalism has never been the sole element of U.S. policy, nor could it be. No country as influential as the United States can be wholly unmindful of the effects of its behavior on others. Structural power, in effect, cuts two ways – on the one hand, encouraging egoism in policymaking; but on the other hand, also discouraging inattention to possible systemic consequences. Washington needs no reminding of its capacity to subvert the world economy from which Americans presumably gain so much. As I wrote some two decades ago:

A country still as large and powerful as the United States needs little incentive to avoid destabilizing behavior whenever possible. Its ability to disrupt is too evident; as American policy makers since John Connally have recognized, the nation’s self-interest is too closely identified with stability of the overall system for them to try deliberately to act “irresponsibly.” (14)

A conservative instinct for system preservation, therefore, is an ever-present element of U.S. policy too and is also easy to see — for example, in the leading role Washington took in organizing costly financial assistance for Mexico in 1994-95 and for East Asian countries in 1997-98. The real issue is the balance between the elements of self-interest and system preservation in American behavior.

Admittedly, that balance has not been as consistent as one would like, not least because of the vagaries and rhythms of domestic U.S. politics. It is also true that the balance has often tipped quite dramatically in the nationalist direction – for example, in 1971, when Richard Nixon closed the gold window; or in the early 1980s, when Ronald Reagan’s supply-side experiment was launched. At times like these, American behavior has been anything but enlightened. But that is hardly the same thing as tyranny, pace Strange’s disappointed scolding. It is one matter to seek to exercise autonomy when possible, quite another to exhibit a persistent, malign impulse to dominate and exploit others. In practice American hegemony has been, at worst, only intermittently coercive and certainly has not lacked for periods of benevolent generosity as well. To insist otherwise is also to border on caricature.


Susan Strange’s contributions were monumental. Not only was she a pioneer in sensitizing us all to the intricate links between money and power in world politics – the “political element” of money that had for so long been neglected. She also provided us with some key tools of analysis, including not least her critical distinction between relational and structural power in inter-state relations. Her early work highlighted in particular the reality of hierarchy in international monetary relations. Her later writing kept us alert to the difficult issues of cooperation and governance in global finance. Yet in the end she succeeded in raising more questions than she answered, at the levels of both theory and praxis. It is a tribute to her lasting influence that for years to come, intellectual discourse in this core area of international political economy will most likely continue to be dominated by the research agenda she set.


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1. The young economist was, of course, myself. My book, The Future of Sterling as an International Currency (Cohen 1971), was published the same year as Strange’s Sterling and British Policy – but with a much shorter half-life.

2. See e.g., Strange 1986, 1994 [1988], 1996, 1998.

3. See e.g., my own contributions at the time (1971, 1977), which were also distinctly state-centric.

4. But not more quickly than all others. Modestly, I may claim to have made the point even earlier in a book, Banks and the Balance of Payments, published in 1981 (Cohen 1981), and in my contribution to the well known volume on international regimes edited by Stephen Krasner, which appeared in 1983 (Cohen 1983). In both I argued that as a result of the revival of international finance, the international monetary system was becoming increasingly “privatized,” with implications that were then still barely understood.

5. I have chided Strange for this before. See Cohen, Organizing the World’s Money (1977): 301, n. 36. Though Strange herself admitted as much in describing her approach as a “taxonomy” (Strange 1971a: 217) or “typology” (Strange 1971b:6), she in turn joshed me, in a review of my book published in International Affairs (55:1, January 1979), for my “strong classroom – not to say, Germanic – habit of arranging everything in mnemonic lists for easy note-taking.” Our relationship, though affectionate and mutually respectful, was not uncritical.

6. The quote is from 1985: 11. See also 1996: ch. 2. The roots of Strange’s non-traditional approach were first developed in her 1975 article on “What is Economic Power, and Who Has It? (Strange 1975).

7. Indeed, I had tried even earlier to make the same distinction, labeling the two levels “process power” and “structure power” (Cohen 1977: 53-57). But Strange’s treatment was more fully developed.

8. In turn, Keohane and Nye owed an intellectual debt to the economist Albert Hirschman who, writing even earlier about Nazi Germany’s trade policies before World War II, had ably demonstrated how “the power to interrupt… relations with any country, considered as an attribute of national sovereignty, is the root cause of the influence or power position which a country acquires in other countries” (Hirschman 1945: 16).

9. For more detail and references, see Cohen 1998, ch. 2.

10. The term “key currency” was originated after World War II by American economist John Williams. See e.g., Williams 1947.

11. The category of Negotiated Currency seems rather archaic today, decades after formal decolonization. But a British subject, writing at a time of rapid decline in the international status of the pound sterling, may be forgiven for having considered its inclusion topical.

12. For more detail on these two episodes of French “systemic disruption,” see Kindleberger 1972; Kirshner 1995: ch. 5. The term “exorbitant privilege” was coined by Charles De Gaulle, president of France during the 1960s, who expressed particular resentment of America’s capacity, owing to the dollar’s universal acceptability, to run payments deficits “without tears.”

13. Kindleberger put the point more succinctly in his famous aphorism that “for the world economy to be stabilized, there has to be a stabilizer, one stabilizer (Kindleberger 1973: 305).

14. Cohen 1980: 61. John Connally, Treasury Secretary in 1971, was instrumental in persuading Richard Nixon to terminate the dollar’s gold convertibility.

Source: accessed by 28 December 2008

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