Monetary Nationalism Will Worsen Economic Crisis, Warns New Book by Benn Steil and Manuel Hinds

March 10, 2009

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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.

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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.

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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.

"Steil and Hinds have written a revelatory historical essay on the relationship between money and the state, emphasizing that from the very origins of coinage, rulers sought to establish and exploit monopolies over currencies," said Harvard University’s Niall Ferguson. "This, more than anything else, helps to explain the many inflations and other monetary disruptions in history. At a time when a global financial crisis is revealing the limits of state control over the money that banks create, this is a timely and original contribution."

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"Stimulating reading. Thoughtful and well written, bringing new perspectives."
--Otmar Issing, first chief economist, European Central Bank

"Money, Markets, and Sovereignty offers an unusually wide-ranging and historically informed examination of contemporary controversies over globalization, and provides a searching exploration of the tensions between money as an emblem of national sovereignty and its role as a fundamental tool of individual choice."
--Jerry Z. Muller, author of The Mind and the Market: Capitalism in Western Thought

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"This book is an important analysis of the roles of money and sovereignty in advancing globalization and its positive effects on living standards. Particularly in this era of political skepticism over gains from globalization, Steil and Hinds have written an essential text for our new leaders and those who advise them."
--Glenn Hubbard, Dean and Russell L. Carson professor of finance and economics, Columbia Business School

"Money, Markets, and Sovereignty presents an extremely valuable and timely examination of the pros and cons of modern globalization, set against a background of illuminating historical precedents and debates."
--William H. Donaldson, twenty-seventh chairman of the Securities and Exchange Commission

To order, visit http://www.cfr.org/money_markets_and_sovereignty/

Benn Steil is senior fellow and director of international economics, Council on Foreign Relations, and founding editor of the journal International Finance. He is co-author of Financial Statecraft, published by Yale University Press.

Manuel Hinds is a business and government consultant and former fellow, Council on Foreign Relations. He has twice served as minister of finance in El Salvador. He is the author of Playing Monopoly with the Devil, published by Yale University Press.

The Council on Foreign Relations is an independent, nonpartisan membership organization, think tank, and publisher dedicated to being a resource for its members, government officials, business executives, journalists, educators and students, civic and religious leaders, and other interested citizens in order to help them better understand the world and the foreign policy choices facing the United States and other countries.

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