As a global economic crisis unfolds, a new book by CFR director of international economics Benn Steil and former Salvadoran finance minister Manuel Hinds warns that the incompatibility of globalization and the international monetary system will spark new political tensions and undermine free trade.
Money, Markets, and Sovereignty explains that eras of greater protectionism have historically coincided with monetary nationalism, while eras of liberal trade have been accompanied by a universal monetary standard, such as the gold standard used in the late 19th century. Today, international economic relations are marked by an unprecedentedly liberal global trade regime that is operating side by side with an extreme doctrine of monetary nationalism, in which the vast majority of countries use currencies unacceptable to foreigners.
Steil and Hinds warn that this situation is bound to trigger periodic crises, and call for a revival of the political and economic thinking that distinguished earlier great periods of globalization—ideas that are increasingly under threat by more recent concepts of sovereignty. The book offers historical perspective on why currencies rise and fall, concluding that global financial security is being crippled by monetary nationalism.
A Council on Foreign Relations Book