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The 1990s have been the decade of globalisation. We see its effects everywhere: in economic, social and political life, around the world. Yet the more all-pervasive are globalisation’s effects, the more elusive is the animal itself. An enormous outpouring of academic literature has failed to provide an agreed view of its physionomy or its location and some reputable academics of Right and Left even question its very existence. Others, notably Anglo-American journalists and politicians, insist it is a mighty beast which savages all who fail to respect its needs. They assure us that its gaze, ‘blank and pitiless as the sun’, has turned upon the Soviet Model, the Third World Import-Substitution Development Model, the European Social Model, the East Asian Development Model, bringing them all to their knees. For these pundits, globalisation is the bearer of a new planetary civilisation, a single market-place, a risk society, a world beyond the security of states, an unstoppable, quasi-natural force of global transformation.

Yet, as the East Asian crisis turned into a global international financial scare, some who might be thought to be deep inside the belly of this beast, the big operators on the ‘global financial markets’, wondered whether globalisation might be in its death agony. At the start of 1998, Joe Quinlan, senior analyst for the American investment bank Morgan Stanley, raised the possibility that globalisation may be coming to an end. He noted that "globalisation has been the decisive economic event of this decade" and stressed that "no one has reaped more benefits from globalisation than the United States and Corporate America....The greater the velocity and mobility of global capital, the more capital available to plug the nation’s low level of savings and boost the liquidity of financial markets. In short, globalisation has been bullish for the world economy in general and for the United States in particular." But Quinlan worried that governments in various parts of the world may be turning against globalisation and may decide to bring it to an end in 1998. As he put it: "...the biggest risks to the world economy next year is not slower growth, but rather an unravelling of global interdependence -- and therefore the end of globalisation." For Quinlan, then, globalisation is a rather fragile, vulnerable creature, dependent upon the nurturing care of states.

Thus, we are left with an awareness that there have indeed been powerful new forces in the international political economy of the 1980s and 1990s, which we label globalization, but their contours, dynamics and causes remain obscure: as elusive to our grasp as a black cat in a dark room.

This essay is yet another attempt to catch this cat called globalization, or rather to catch one of its main organs: its central nervous system. We will argue that this lies in the way in which international monetary and financial relations have been redesigned and managed over the last quarter of a century. This new monetary and financial regime has been one of the central motors of the interlocking mechanisms of the whole dynamic known as globalization. And it has been not in the least a spontaneous outcome of organic economic or technological processes, but a deeply political result of political choices made by successive governments of one state: the United States. In this sense we are closer to the Morgan Stanley view of globalization as a state-policy dependent phenomenon than to the notion of globalization as a deep structure favoured by Anglo-American media pundits. To indicate its location in international reality we call it a ‘regime’, although, as we will explain, it is not a regime in quasi-juridical sense in which that word has been used in American international relations literature.

International monetary and financial relations are always the product of both economic and above all political choices by leading states. Studies of globalization which fail to explore the political dimensions of the international monetary regime that has existed since 1973 will miss central features of the dynamics of globalization. This international monetary regime has operated both as an international ‘economic regime’ and as a potential instrument of economic statecraft and power politics. The name given to it here is the ‘Dollar-Wall Street Regime’ (DWSR). We will try to trace its evolution from origins in the 1970s through the international economics and politics of the 1980s and 1990s up to the Asian crisis and the panic of 98.

We are not going to claim that the history of international monetary and financial relations of the last quarter of a century gives us the key to understanding the contemporary problems in the advanced capitalist economies. As Robert Brenner has demonstrated, these problems of long stagnation have their origins in a deep-seated crisis of the productive system of advanced capitalist societies. The onset of this stagnation crisis formed the background to the changes initiated by the Nixon administration in international monetary and financial affairs: but the production crisis did not determine the form of the response. There were a range of options for the leading capitalist powers to choose from and the one chosen, which has led to what we call globalization, was the outcome of international political conflicts won by the American government. Since the 1970s, the arrangements set in motion by the Nixon administration have developed into a patterned international regime which has constantly reproduced itself, has had very far-reaching effects on transnational economic, political and social life and which has been available for use by successive American administrations as an enormously potent instrument of their economic statecraft. One of the most extraordinary features of the whole story is the way in which these great levers of American power have simply been ignored in most of the literatures on globalization, on international regimes and on general developments in the international political economy.

In exploring this Dollar Wall Street Regime we need no algebra or geometry and almost no arithmetic or even statistics. The basic relationships and concepts can be understood without the slightest familiarity with neo-classical economics. Indeed, for understanding international monetary and financial relations, lack of familiarity with the beauties and ingenuities of neo-classical economics is a positive advantage.

The essay is in five parts. We begin with a brief discussion of terms, concerning the meaning of ‘capital markets’ and the roles and forms of financial systems. In the second part we look at the new mechanisms established for international monetary relations by the Nixon administration in the 1970s. The resulting regime gave leverage both to the US government and to Anglo-American financial markets and operators. One of the fascinating features of the regime is the way in which it established a dynamic, dialectical relationship between private international financial actors in financial markets and US government dollar policy. Most of the literature on globalization tends to take as a governing assumption the idea that the relationship between the power of markets (and market forces) and the power of states is one mainly marked by antagonism -- an idea deeply embedded in much liberal thought. Yet, in a seminal article written at the time of the Nixon changes, Samuel Huntington noted how false that idea is: "Predictions of the death of the nation-state are premature....They seem to be based on a zero-sum assumption...that a growth in the power of transnational organisations must be accompanied by a decrease in the power of states. This, however, need not be the case." We try to show how the DWSR, steered by the US government, worked in and on the international political economy and how it latched onto and changed the internal economics, politics and sociology of states and their international linkages.

The third part of the essay looks at the operations of the Dollar-Wall Street Regime over the last quarter of a century. We look at how US administrations have sought to use the regime, and the responses of the European Community states, Japan, the countries of the South and of the former Soviet Bloc to the regime. We also look at how the regime contributed towards changing the US domestic financial, economic and political systems.

In the fourth part, we try to place the DWSR and its effects into the framework of the dynamics of international politics as a whole in the early 1990s. We look at these issues, so to speak from the angle of the lead state: the United States. And we try to build in the effects of the Soviet Bloc collapse on how American leaders formulated their strategic goals and recombined their tactics. I argue that they rationally had to, and did, recognise that their key challenge lay in East and South East Asia. And to tackle that challenge and to frustrate future challenges to US global leadership, they had to radicalise the DWSR and seem to have used it as an instrument of economic statecraft in East Asia.

In the fifth part we argue that the conventional view of the unfolding of the central drama of East Asian crisis in the autumn of 1997 -- the events in South Korea -- is mistaken insofar as it assumes the central actors to have been market forces. The critical role was played by the US Treasury, which acted in quite new ways during the Korean crisis. It was this Treasury intervention in South Korea which was responsible for the subsequent Indonesian collapse and which indirectly and unintentionally set in motion the triggers which turned the East Asian crisis into a global financial crisis during 1998. At the same time, the reason why the US Treasury’s action could play this triggering role lay in the effects of 20 years of US exploitation of the Dollar-Wall Street Regime on the world economy. We conclude by considering whether there is a possible social-democratic capitalist alternative strategy which could reverse the dynamics of globalization.

Most of the various notions of what globalization is about focus on the growing mobility of capital across the globe in the ‘global capital market’ and upon the impact of this mobility on national economies. But the term ‘capital market’ is analytically incoherent, because it embraces radically different phenomena in the field of finance, most of which have nothing directly to do with capital in the usual common sense meaning of the term, while at the same time it excludes a great deal of the operations of what capital actually does. So we need to clarify our notions about ‘capital markets’, global or otherwise, in order to understand this international phenomenon known as globalization.

In common sense language we associate the word capital with the idea of funds for productive investment, for putting together machines, raw materials and employees to produce sellable items. This is a useful starting point for using the word capital because it stresses its socially beneficial role within a capitalist system.

One of the central confusions concerning globalization lies in the widespread belief that the so-called ‘global capital markets’ in which trillions of dollars are bouncing back and forth across the globe are in some way assisting the development of the productive sector of capitalism. It is because we imagine that the ‘global markets’ are integral to production that we imagine that we have no choice but to accept them. Yet in reality the great bulk of what goes on in the so-called ‘global capital markets’ should be viewed more as a charge upon the productive system than as a source of funds for new production. The idea that the current forms of ‘capital markets’ are functionally indispensable investment mechanisms is a serious error. The ‘capital market’ is both much more and much less than the funnel for productive investment. It is much more because it includes all forms of credit, savings and insurance as well as large, diversified markets in titles to future income and not just credits for productive investment. And it is much less because very large flows of funds into productive investment do not pass through the so-called ‘capital markets’ at all.

This confusion about the role of capital markets is linked to another, concerning ‘mergers and acquisitions. Thus, it is often assumed that when one company buys control of another company, some kind of capital investment is taking place. Yet frequently such acquisitions of assets may have nothing to do with new real investment at all, indeed, the reverse may be occurring: the acquisition may be concerned with running down the activities of the acquired asset, in order that the buyer of the asset can eliminate competition and gain greater market power. During the last quarter of a century this process of ‘centralisation of capital’ has been proceeding apace internationally. It is called ‘Foreign Direct Investment’ but in most cases it simply means changing the ownership of companies and may have to do with disinvestment in production rather than the commitment of new resources to expansion of production.

The notion that a great expansion of the size of ‘capital markets’ is a symptom of positive trends in capitalist production is as false as imagining that a vast expansion of the insurance industry is a sign that the world is becoming a safer place. Insurance can operate in the opposite way: the more crime the bigger the property insurance market. Similarly, when great fortunes are being made overnight on ‘capital markets’ the most useful rule of thumb for interpreting such trends is one which says that something in capitalism is functioning very badly from a social point of view. We will explore some of these terms, starting with the most obvious feature of financial systems, their role in supplying credit.

Credit involves lending money to people on the understanding that they will pay the money back later along with a bonus or ‘royalty’, usually in the form of a rate of interest. There is nothing necessarily capitalist about credit and large parts of national credit systems are not related to production at all. Workers can put their savings into a credit co-operative and draw loans from it in hard times in the hope of paying the money back in better times. They pay a royalty for the service but this can be small because the co-operative is non-profit-making. Such co-operatives serve consumption needs, not production and they are not capitalist. Building societies confined to the housing market play a similar role in supplying credit for people to purchase housing. A common feature of these kinds of organisations is that the credit-money that they issue is directly derived from savings deposited within them. In other words, their resources come from the past production of value in the economy: employees’ savings come from wages that they have already earned in production.

Banks are different because they are able to create new money in their credit operations. We can see this when we realise that at any one time, the banks as a whole could be giving overdrafts to everybody in the entire economy. Thus, far more money is circulating in the economy than the money derived from savings generated by past value creation. Part of the money is actually what we can call fictitious money -- money derived not from the past but from expectations that it will be validated by future productive activity. Within capitalism, banks also do not have to be operated as private capitalist companies. At the beginning of the 1990s, for example, more than half of the 100 biggest banks in Europe were publicly owned and their financial criteria for operating were, in principle, matters of public choice. And even if they are private, the banks play such an essential and powerful role in the public economy because of their capacity to issue credit money that any sensible capitalist class will ensure that the state is constantly interfering in their operations (even though, for ideological reasons, one wants to keep these state functions ‘low profile’). As Kapstein puts it: "Banks are told how much capital they must hold, where they can operate, what products they can sell, and how much they can lend to any one firm."

The existence of this fictitious credit money is very beneficial for the whole economy because of its role in facilitating the circulation of commodities. Without it, economic development would be far slower. It is especially important to employers, enabling them to raise large amounts of money for equipment which will yield up its full value in production only over many future years. If employers could invest only real savings -- the money derived from past value-creation -- investing in fixed capital would be far more costly --too costly for a lot of investment. And credit has also become a very important means of expanding the sales of goods to consumers. This is another way of saying that modern economies run on large amounts of debt. So the banks do play an important role in both channelling savings and creating new funds (fictitious money) for productive investment. An entire capitalist economy could be run with a financial system consisting entirely of such banks.

But historically, other forms of financial institutions have grown up, especially in the Anglo-Saxon world which has played such a central role in the historical development of capitalism. First there has been the development of shares and bonds as means of raising funds. A company can offer shares for sale and use the funds from the sale to invest in the business. The shares are pieces of paper giving legal titles to a claim on future profits from the company’s activities. Companies or governments can also sell bonds and use the funds from the sale for an infinite variety of purposes. These bonds are similarly pieces of paper giving legal titles to a fixed stream of future income to the holder for a fixed period of time. A special feature of shares and bonds (known collectively in England since the 18th century as ‘stocks’) is that secondary markets have grown up enabling people to buy and sell these pieces of paper entitling the holder to future royalties. Today there are all kinds of pieces of paper that can be bought and sold and that entitle the holder to some kind of future royalty or right. I can buy and sell paper giving me the right to buy or sell a currency at a certain rate at a certain time in the future. There has been a huge growth in markets for such paper claims. The generic term for all such tradeable pieces of paper is ‘securities’.

It is important to recognise that while the initial issuing of a set of shares or bonds is a means of raising funds that may (or may not) be used for productive capital investment, the secondary markets in these securities are not contributing directly at all to productive investment. Instead the people on these markets (such as the Stock Market) are buying and selling claims on future value created in future productive activity. They are not handing over funds for that productive activity; they are claiming future royalties from it. These claims on future royalties from future production are either direct or indirect claims. A share in Ford Motors is a direct claim on future value created in Fords. A Russian government bond which I hold is an indirect claim on future Russian production of value. I hold the bond not because I think the Russian government will produce the value but because I imagine that it will pay me my royalty by extracting taxes from the productive activity of others in Russia: no production, no royalty on my bond.

Against this background, we can now return to the phrase ‘capital market’. What is mainly (although not only) referred to by this phrase is actually securities markets. And we thus discover that ‘capital market’ in the sense of a securities market may have nothing directly to do with supplying funds for capital investment. It may have to do with the opposite process: trading in claims to draw profits from future productive value-creation. At the same time, both bank credits and bonds may be used for capital raising functions but they may equally be used for other purposes. And neither foreign exchange markets nor the so-called derivatives markets have anything directly to do with capital investment -- we will examine later what their functions are.

How could such an apparent abuse of language, whereby various kinds of financial markets are all described as capital markets, occur? The answer is that it is not an abuse of language for one group of the population: rentiers and speculators. Rentiers are those who derive their income from extracting royalties from future production. The speculators are those who derive their income from trading in securities or currencies by trying to sell them at higher prices than they bought them for.

As has been implied by our analysis, rentiers are not, in principle, an integral element in capitalism. Those parts of the system’s reproduction which necessarily involve the channelling of funds of money from past value-creation and from credits in the form of fictitious money could be handled entirely by commercial banks (which could themselves be publicly owned).

Thus, when we examine the growth of the so-called ‘global capital markets’ we will find that much of their activity is not about the supply of capital for productive activity. It is about trading in royalties on future production in different parts of the world or about businesses engaging in various kinds of insurance against risks. And the trend in the organisation of the flows of finance has been increasingly one which privileges the interests of rentiers and speculators over the functional requirements of productive investment. This fact is revealed through an examination of the tensions between what we may call the two poles of capitalism, that of money-dealing capital and that of the employers of capital in the productive sector.

Whether the financial system is organised predominantly in the form of commercial banks or in the form of securities markets, we notice a division which is inherent in capitalism: the division between money-dealing capital on one side and productive capital on the other. These two entities have different kinds of concerns because of the different circuits of their capitals. For the employer of capital in the productive sector the circuit runs as follows: capital starts as money (some of which is borrowed from the money-capitalist), which is then turned into plant, raw materials and employees in the production process. The capital then emerges from production as a mass of commodities for sale; when the sale is completed capital re-appears in the form of money with the extra-surplus extracted from the production process. Out of this extra surplus, the employer of capital pays back the money-capitalist the sum initially advanced, along with royalties.

But from the angle of the money capitalist, the circuit looks different. It starts with a fund of money. This money is then locked into a project for a certain time. At the end of that time, the money capitalist hopes to get the money back with a royalty. For the money-capitalist absolutely any project which will offer a future royalty is what capitalism is all about. If buying a share in Fords gives a royalty of 6% in a year, while a Ukrainian government bond will give a royalty of 34% and buying a case of Chateau Lafite to sell it in a year will yield 15%, the problematic is the same for the money capitalist in each case: in an uncertain future, which of these different ‘capital markets’ will give me the best mix of safety and high yield?

Property that can be used as capital thus appears simultaneously in two polarised embodiments: on one side stand the money capitalists controlling enormous accumulations of funds; and on the other side stand the employers of capital managing the enterprises. These are two forms of the same thing, analogous to God the Father and God the Son. But their polarisation is very important because it enables money capital as the controller of funds to play a planning role in capitalist development. By being distanced and relatively autonomous from the employers of capital in the productive sector, the money-capitalists can pick and choose what sectors they advance money capital to. If a branch has reached ‘maturity’, barely achieving the average rate of profit, then resources of value from that sector as well as fictitious money can be advanced to other sectors which seem likely to produce higher rates of return. Through such redeployments, the financial system in the hands of the money-capitalists is supposed to spur growth.

For supporters of capitalism this development co-ordination role of the money capitalists is considered to be one of the most ingenious and beautiful aspects of the entire system. One might say that the relationship between the productive sector and the financial sector is one where the productive sector is determinant but the financial sector is dominant. The productive sector is determinant because it produces the stream of value out of which the money-capitalists in the financial sector ultimately gain their royalties, directly or indirectly. On the other hand the financial sector is dominant because it decides where it will channel the savings from the past and the new fictitious credit money -- who will get the streams of finance and who will not. The actual power balances between the two sectors are partly governed by the business cycle. In the boom productive capital is flush with cash and can, so to speak dictate terms to the money capitalists; but in the recession the money capitalists become ruthless, bullying tyrants as the employers of productive capital beg for credit to tide them over. But power relations between the two are also crucially affected by institutional design -- by the social relations of production. The state, through a highly charged and politicised process, can and does tilt the balance between the money-capital pole and the productive capital pole and between the money-capital pole and all parts of the credit system, keeping, for example, money-capital out of whole sectors of the credit system, if it wants to. The state also makes crucial decisions about the internal structure and inter-actions within the money-capital pole itself. What will banks be allowed to do, and what will they be kept out of? Will we have a private securities market or not? And so on. And we must also remember that the state is not just designing relations between the two poles of capital; it is also designing its own relation with the financial pole because it too will wish to use the credit system.

From our analysis of these two poles of capital, another very important distinction emerges, between the tempos and rhythms of two kinds of financial flows linked to the two different kinds of circuits. For the money capitalist there is a tendency to seek quick returns and to keep capital in as liquid a state as possible, for reasons of safety. The employer of capital seeks to set up much longer-term circuits, particularly concerning funds for fixed capital investment, which yield their full value only over many years. The tendency for the first group is thus to generate ‘hot money’ flows, extremely sensitive to even very small changes in their environment; while the second group tends to generate cold, long flows which have to be robust to significant changes in their environment. The hot flows are linked to royalty seeking from either securities trading or from very short-term loans. This difference is extremely important when we seek to analyse international movements of funds. Insofar as all kinds of money can flow freely internationally, we would expect to see very radical differences between these two kinds of flows: a small change in the exchange rate of one country or in the short-term, government-fixed interest rates in another can produce sudden, major shifts in flows of hot money, but exert no significant influence on flows of funds concerned with real, long-term investment in production.

The relationship between capital and labour within the productive sector is, of course, an absolutely fundamental social relationship in the functioning of any actual capitalist system. But the relationship between money-capital and the productive sector is another absolutely central social relationship. Some of the sharpest conflicts within capitalist societies have occurred around these social relationships between the financial sector and the rest of society.

At the end of the war, politics in the Atlantic world was governed by forces who favoured what the neo-liberals call ‘financial repression’ and what Keynes approvingly referred to as ‘euthanasia for the rentiers’. The story of the last quarter of a century has been that of the resurrection of the rentiers in a liberation struggle against ‘financial repression’. This has gone hand in hand with the idea that the approach to the design of financial systems championed by people like Keynes and the US occupation regimes in Germany and Japan after the war -- ‘financial repression’-- is an approach alien to genuine capitalism, apparently of Far Eastern origin! These debates concern not only the institutional-power relations between money-capital and the employers of capital but also the role of the state and the forms of class relationships across the entire society.

But to understand this whole story we must appreciate that these social and institutional design issues are not necessarily resolvable at a purely national level. It is actually an activity also of the inter-state system, insofar as funds can flow more or less freely from one national currency zone to another. For the money capital pole plays its role only through acting as money. And insofar as the currencies of states are more or less freely convertible by private economic actors into the currencies of other states, financial relations in one capitalist society can be subjected to powerful influences from the financial sectors of other capitalist states.

The transformation of the relations between the money-capital pole and the productive sector of national capitalisms has been a central feature of what has come to be known as ‘neo-liberalism’ over the last quarter of a century. But this transformation has been achieved in close connection with profound changes in the field of international monetary and financial relations. Against this background, we will examine the international monetary system and how it relates to international and national financial systems.

The need for an international monetary system is not, in itself, something derived from capitalism. It arises from the political as well as economic fact that the world is divided into separate states with separate currencies and from the fact that groups within one state wish to do business with (and inside) other states. Historically, most of that international business has been concerned with trade in goods. The problem of international monetary relations arises in the first place over how two groups in different currency zones can buy and sell goods. One obvious way of handling this problem is to use neither of the currencies of each state but instead to use a third form of money, say gold, which has an exchange price with each of the two currencies. Alternatively, there may be an established exchange rate directly between the two currencies and the seller of the goods may be prepared to accept payment in either of the two currencies, etc. The important point, for the moment, is simply that some sort of international monetary system is necessary for the functioning of an international economy.

These exchanges in the international monetary system are monitored closely at an inter-state level to answer one important question: are the economic operators of a state buying more from other states than they are selling to other states? In other words, what is a state’s so-called balance of payments in current transactions? Is the account in surplus or in deficit? These questions are important because if a state is heavily in deficit people start to wonder whether it will be able, in the future, to find the internationally acceptable money that it will need to pay all its international obligations. Does a deficit state have enough reserves of international money to keep paying off its deficit? Can it borrow internationally acceptable money from somewhere to keep meeting its obligations? The more such doubts grow, the more the economic operators within the state concerned can face difficulties of one kind or another.

But this system is not a ‘natural’ or a purely economic one. It is both economic and political. The whole concept of the balance of payments rests on the political division of the world into different states with different moneys. The arrangements for establishing acceptable forms of international money are also established by political agreement among states. And the treatment of countries with current account deficits or surpluses is also politically established. Should there be an arrangement whereby states with current account deficits cut back on their purchases from abroad to get rid of their deficits? Or should the surplus states be pressurised to buy more from the deficit countries? Arrangements of either sort can be put in place. If the deficit countries must adjust, that will have a depressive effect internationally, because they will cut back on their international purchases. If the opposite approach is used, it will have a stimulative effect on international economic activity. Which approach is adopted will depend upon international political agreement between states over the nature of the international monetary regime that is to operate. And this agreement will not be one between equals. The biggest powers, or perhaps even one single big power, can lay down what the regime will be. All the other states will be ‘regime takers’, rather than ‘regime makers’.

The concerns of Keynes and Dexter White in their efforts to construct a new international monetary system for the post-war world were to construct arrangements which would privilege international economic development. This required a predictable and stable international monetary regime that would be rule-based and would not be manipulable by powerful states for mercantilist advantage.

They therefore retained gold as the anchor of the system -- a money separate from the currency of any nation state. And they laid down that the dollar would have its price fixed against gold. Other states then fixed their currency prices against the dollar and were not allowed to unilaterally change that price as they pleased. Changes in currency prices would be settled co-operatively between states through a supranational body, the International Monetary Fund. The result of these arrangements was that economic operators enjoyed stability in the prices of the main currencies against each other since all were fixed at a given price against gold. In practice, the dollar was the main international currency in use for trade, but its exchange price was fixed like that of any other currency.

The second major feature of the Keynes-White system was that it largely banned private financial operators from moving funds around the world freely, giving the central banks of states great powers to control and prevent such financial movements. Private finance was allowed to transfer funds for the purposes of financing trade. There was also provision for funds to be moved across frontiers for foreign productive investment. But other movements of private finance were to be banned: ‘financial repression’ on an international scale. Such repression then meant that investment resources would be ‘home-grown’ within states. And it also meant that money-capital had to confine its royalty-seeking operations to those activities which its nation-state would allow. In other words, states were able to dominate and shape the activities of their financial sectors in ways that would suit the state’s economic development goals.

This system seems to have worked very well, in terms of its growth record, even when most of the currencies of the advanced capitalist states were not even freely convertible with each other for current transactions (as was the case in Western Europe up to 1958). But the regime was dismantled in the early 1970s by the Nixon administration, which thereby set the world economy on a new course.

In the early 1970s the international monetary system was radically transformed by the Nixon administration, in the teeth of opposition from all the other main capitalist powers. We will not explore the whole context in which these changes were made, but it was one marked by very acute tensions between the United States and both Western Europe and Japan as well as by the debacle for the United States of its war in Vietnam. The tensions with its ‘allies’ derived essentially from the fact that both Japanese and West European capitals were not powerful enough to eat into markets previously dominated by US companies. In the monetary field the US was confronting a situation where, if the Bretton Woods regime was going to remain in place, the Nixon administration would have to arrange a substantial devaluation of the dollar against gold. Nixon opted instead to scrap Bretton Woods and to make a series of breathtaking moves to restructure international monetary and financial arrangements.

The Nixon administration imposed three key changes in international monetary relations: first, it ended the role of gold as a global monetary anchor, leaving the dollar as the overwhelmingly dominant international money. Now the only monetary units for international transactions were those paper moneys issued by states. This meant that the exchange price of the overwhelmingly most important international money, the dollar, untied to gold, could be decided by the US government.

Secondly the Nixon administration ended the previous rules of fixed exchange rates between the main currencies. It wanted to gain complete freedom for American administrations to establish the dollar’s rate of exchange with other currencies as the US government wished: hence the end of fixed exchange rates. This was an enormously important development, because, for reasons which we will discuss later, the US government could, alone among governments, move the exchange price of the dollar against other currencies by huge amounts without suffering the economic consequences that would face other states which attempted to do the same.

And thirdly, the Nixon administration decided to try to ensure that international financial relations should be taken out of the control of state Central Banks and should be increasingly centred upon private financial operators. It sought to achieve this goal through exploiting US control over international oil supplies. It is still widely believed that the sharp and steep increase in oil prices in 1973 was carried out by the Gulf states as part of an anti-Israel and anti-US policy connected to the Yom Kippur war. Yet as we now know, the oil price rises were the result of US influence on the oil states and they were arranged in part as an exercise in economic statecraft directed against America’s ‘allies’ in Western Europe and Japan. And another dimension of the Nixon administration’s policy on oil price rises was to give a new role, through them, to the US private banks in international financial relations.

The Nixon administration was planning to get OPEC to greatly increase its oil prices a full two years before OPEC did so and as early as 1972 the Nixon administration planned for the US private banks to recycle the petrodollars when OPEC finally did take US advice and jack up oil prices. The Nixon administration understood the way in which the US state could use expanding private financial markets as a political multiplier of the impact of US Treasury moves with the dollar. But according to the Nixon’s Ambassador in Saudi Arabia at the time, the principal political objective behind Nixon’s drive for the OPEC oil price rise was to deal a crippling blow to the Japanese and European economies, both overwhelmingly dependent on Middle East Oil, rather than to decisively transform international financial affairs. Nevertheless , Nixon’s officials showed far more strategic insight into the consequences of what they were attempting than most political scientists would credit any government with. Its capacity for deception both over the oil price rise and in the way in which it manipulated discussions with its ‘allies’ in the IMF over so-called ‘international monetary reform’ was brilliant.

The US government realised that the oil price rises would produce an enormous increase in the dollar earnings of oil states that could not absorb such funds into their own productive sectors. At the same time, the oil price rises would plunge very many states into serious trade deficits as the costs of their oil imports soared. So the so-called petrodollars would have to be recycled from the Gulf through the Western banking systems to non-oil-producing states. Other governments had wanted the petrodollars to be recycled through the IMF. But the US rejected this, insisting the Atlantic world’s private banks (at that time led by American banks) should be the recycling vehicles. And because the US was politically dominant in the Gulf, it could get its way.

The debate about recycling the petrodollars was part of a wider debate among the main capitalist powers over whether to scrap international ‘financial repression’ and the system of maintaining control over international financial movements firmly in the hands of the Central Banks of states. In these debates, which took place within the IMF, the US was completely isolated, as all other governments as well as the IMF staff wanted to retain strict controls on private international financial movements. But the US got its way through unilateral actions, supplementing the petrodollar move with its own abolition in 1974 of restrictions on the flow of funds into and out of the US (known, in the jargon, as the abolition of ‘capital controls’).

It is true that the Nixon administration was able to exploit a breach in the Bretton Woods system that had already existed since the 1950s: the international role of the City of London in financial transactions. Britain’s government had allowed the City of London to operate as an ‘offshore’ centre for international private financial operations of all sorts almost entirely unregulated. During the 1960s, the City’s international business grew rapidly through the development of the so-called Eurodollar market: banks in the City accepting deposits in off-shore dollars and then lending these offshore dollars to governments and businesses throughout the world. But this role of the City as an off-shore centre was itself largely dependent upon US government policy (which allowed US banks to operate free of domestic US banking regulation by establishing operations in London).

It is worth stressing that in ‘liberating’ the private banks from ‘international financial repression’ the Nixon administration was not mainly responding to interest-group lobbying from American banks or allowing supposedly spontaneous market forces in finance to do as they pleased. The US banks themselves were initially far from happy about recycling the petrodollars to countries in the South. The US government had to lean on them to do so and had to provide incentives for such lending. One such incentive was to involve the IMF/WB in new, parallel lending to such countries; another was the removal of controls on the US capital account in 1974 to enable domestic US banks to become involved in such lending so that the operations were not confined to US and other banks operating in London. A further incentive was the decision to scrap the ceiling on the amount of a bank’s total lending that could go to any single borrower. And finally, the US government gave its banks to understand that if they got into difficulties as a result of such lending, their government would bail them out.

The Nixon strategy in ‘liberating’ international financial markets was based on the idea that doing so would liberate the American state from succumbing to its economic weaknesses and would strengthen the political power of the American state. According to Eric Helleiner, US officials understood in the 1970s that a liberalised international financial market would preserve the privileged global financial position of the US and grasped also that this would help preserve the dollar’s central international role. Helleiner sums up the fundamental point about the overall political and economic significance of the changes: "...the basis of American hegemony was being shifted from one of direct power over other states to a more market-based or ‘structural’ form of power."

We shall see below how these processes actually worked to strengthen the political power and economic policy freedom of the US. But first we must point out the significance of the rise of private international finance for international monetary relations between states. This rise altered the basis upon which governments maintained the international stability of their own currencies: under the old, so-called Bretton Woods system, the basis for a currency’s stability was closely tied to its trade balance and to the attitude of the IMF and of the governments (Central Banks) of the main capitalist powers to the government of the country in trade balance difficulties. States with surpluses on their ‘current account’ (trade in goods and ‘invisible’ earnings, eg from profits and dividends from its companies overseas or from shares in companies overseas) had stable, strong currencies. If a state developed a current account deficit, it would need to use its foreign exchange reserves to defend its currency or persuade the IMF and other governments to help.

Under the new system states with current account surpluses were still generally in a strong position. But the effective basis of their currency’s stability came to depend upon another factor: the state’s creditworthiness in private international financial markets. Under the previous system, private financial markets had been largely excluded -- banned by ‘financial repression’ -- from involvement in the international monetary system. Now they were to play a central role.

At first sight, these new arrangements might appear to be a liberation for governments from earlier rigidities. Even if they got into current account deficits they could borrow in the, at first London-centred, then later Anglo-American, private financial markets to tide themselves over. And they would be free to allow their currency’s exchange rate to move more flexibly rather than having to subordinate all other economic objectives to maintaining a fixed rate against other main currencies. Yet the bulk of the states involved in the international capitalist economy soon discovered that the liberation was, over the longer-term an illusion. It was more like a trap.

The way the system would actually work depended on its two central mechanisms: the dollar and the increasingly American-centred international financial markets. Thus, the new international monetary arrangements gave the United States government far more influence over the international monetary and financial relations of the world than it had enjoyed under the Bretton Woods system. It could freely decide the price of the dollar. And states would become increasingly dependent upon developments in Anglo-American financial markets for managing their international monetary relations. And trends in these financial markets could be shifted by the actions (and words) of the US public authorities, in the Treasury Department and the Federal Reserve Board (the US Central Bank). Thus, Nixon gave Washington more leverage than ever at a time when American relative economic weight in the capitalist world had substantially declined and at a time when the productive systems of the advanced capitalist economies were entering a long period of stagnation.

We will call this new international monetary-financial regime the Dollar-Wall Street Regime (DWSR for short). The regime was not of course exclusively centred on the dollar: other currencies, particularly the mark, did acquire large roles as international currencies. And Wall Street and its large London satellite were not the exclusive sources of finance. But the Dollar-Wall Street nexus has been the dominant one by far throughout the last quarter of a century.

And it is important to note how the two poles of this system -- the Dollar and Wall Street -- have re-enforced each other. First we can see how the new centrality of the dollar turned people towards Wall Street for finance. Because the dollar has been the dominant world currency, the great majority of states would want to hold the great bulk of their foreign currency reserves in dollars, placing them within the American financial system (or in London). Similarly, because many central commodities in the world economy were priced in and traded for dollars, those trading in such commodities would wish to raise their trade finance in New York and London. Thus, the dollar’s role greatly boosted the size and turnover in the Anglo-American financial markets. At the same time, there was feedback the other way. The strength of Wall Street as a financial centre, re-enforced the dominance of the dollar. For anyone wanting to borrow or lend money, the size and strength of a financial system is a very important factor. The bigger a financial market’s resources and reach, the safer it is likely to be and the more competitive its rates for borrowers are likely to be. And the same is true of securities markets (for bonds or shares). For those seeking royalties from securities a big market with very high rates of buying and selling is safer because you can easily withdraw at any time by finding a buyer for your bonds or shares. Furthermore, if you are a saver looking for high returns in more risky markets it is much better to place your funds in the hands of a big, diversified operator which can absorb losses in one area of trading and compensate the losses with gains elsewhere. Thus the size and depth of the US financial markets and the growing strength of US financial operators acts as an attraction for people to place their funds at the centre of the dollar area or to raise funds in that centre. In this way, the strength of Wall Street has re-enforced the dominance of the dollar as an international currency.

The economic and political significance of this new regime can be appreciated only when we understand the role of seigniorage in giving the American government an immensely potent political instrument in the form of the new regime.

As we saw when we initially discussed international money, a state has to acquire funds of the internationally acceptable money in order to be able to pay for goods and services from abroad. To take an extreme example, few people would accept payment from Chad in Chad’s own currency: it would be useless to the overwhelming majority of people outside Chad. So Chad has to earn (or borrow) an international currency, say the dollar, from abroad before it can buy anything from abroad. But this huge constraint is non-existent for the US under the new, post-Bretton Woods international monetary regime, because the international currency is the dollar and the US does not need to earn dollars abroad: it prints them at home!

Seigniorage is the name for the privileges which this position gives: these can be summarised by saying that the US does not face the same balance of payments constraints that other countries face. It can spend far more abroad than it earns from abroad. Thus, it can set up expensive military bases without a foreign exchange constraint; its transnational corporations can buy up other companies abroad or engage in other forms of foreign direct investment without a payments constraint; its money-capitalists can send out large flows of funds into portfolio investments (buying securities) similarly. And as we have already seen, dollar seigniorage includes giving the US financial system great advantages as the world’s main source of credit. And it is very important to appreciate the significance of seigniorage for trade relations -- imports and exports. When many of the key goods bought and sold in international markets have their trade denominated in dollars, American companies importing or exporting are far less affected by changes in the dollar exchange rate than is the case in other countries. Thus, the international grain trade does business in dollars. If the dollar exchange rate rises massively against other currencies, US exporters of grain are far less seriously affected than they would otherwise be. And if the high dollar produces a flood of imports into the United States, generating a very big, long-term deficit on the current account of its balance of payments, the deficit can be funded in dollars. Thus seigniorage gives the US government the ability to swing the price of the dollar internationally this way and that having great economic consequences for the rest of the world while the US remains cushioned from the balance of payments consequences that would apply to other states.

The Nixon administration’s victory in ‘liberating’ the Anglo-American private banking systems for international operations had four key effects. First it suddenly catapulted private banks into the centre of international finance, pushing out the earlier dominance of the central banks and led quickly to the international dominance of the Anglo-American financial systems and American financial operators. Secondly, it opened up an enormous hole in the public supervision of international financial markets. Thirdly, it made the financial systems and exchange rates of other states, especially countries of the South increasingly vulnerable to developments in the American financial markets. And finally, it generated powerful competitive pressures within the banking systems of the OECD countries and enabled the American government largely to determine what kinds of competitive pressures and what kinds of international regulation of international financial markets should exist. It is impossible to exaggerate just how important these changes were.

The first beneficiaries of the liberation of international private finance were the City of London and the big, internationally oriented US money-centre banks. In 1981 the Reagan administration enacted a law allowing so-called ‘International Banking Facilities’ in the US thus giving Wall Street the same offshore status as the City. It might be thought that the role of the City of London suggests it should be given at least equal status with Wall Street. But this is wrong for one simple reason: the City was acting as a financial market place in dollars and its entire pattern of off-shore operations was dependent upon US government policies for international finance. It thus operated principally as a servicing centre for the dollar currency zone and as a satellite of Wall Street.

Since the early 1980s, the great bulk of the international financial market activity has thus been centred in Wall Street (and its London satellite). It is necessary to be precise about what this signifies. Frequently it is held to signify that there is a so-called ‘global’ financial market. This is true if it means that London and New York do business with people from all over the world. Funds flow out from and back to those two centres from and to most countries of the world. But this does not at all mean that all the financial markets of the world are unified in a single, integrated financial market. On the contrary, financial markets remained and largely remain compartmentalised not only between countries but even within countries: we can see this if we realise that even within Euroland after the launch of the Euro there will still be substantial barriers to the full integration of financial markets. But what did happen in the 1970s was that London and New York operators did begin to establish linkages between their international financial markets and national financial systems around the world which were far stronger than these had been in the 1960s. The expansion of these international private financial operations can be appreciated by comparing the size of international bank loans and bond lending between 1975 and 1990: bank loans rose from $40bn in 1975 to well over $300bn by 1990; during the same period bond lending rose almost tenfold, from $19bn to over $170bn.

Talk of a global financial market, rather than of the increasing influence of the American financial market over other national financial markets obscures the power dimension of US financial dominance. Those who believe that the adjective ‘American’ is trivial or even redundant should ask themselves a simple question: would they, then, be quite happy from an economic and political point of view if the international financial system was dominated by the markets and operators of China or Iraq, just so long as they could offer similar kinds of credit or other financial services on similar terms to those of Wall Street? But to make the point much more directly, we can simply note that because the American financial markets have been dominant within the hierarchical networks of financial markets, access to that market, different kinds of linkages between national economies and that market and price movements in that market have enormous economic and political significance.

The story since the 1970s has been one of growing pressures from the Wall Street centre to weaken the barriers to its penetration into domestic financial systems. This pressure has a triple target: first to remove barriers to the free flow of funds both ways between Wall Street and private operators within the target state; second to give full rights to Wall Street operators to do business within the financial systems and economies of the target states; and thirdly, to redesign the financial systems of target states to fit in with the business strategies of Wall Street operators and of their American clients (transnational corporations, money market mutual funds, etc.)

Of course, Wall Street and London have not had a monopoly. Tokyo has grown and some of the biggest financial operators are Japanese. Frankfurt, Zurich, Paris, Hong Kong and Singapore are all important. But none of these other centres as yet comes close to rivalling the size of Wall Street and London and in financial affairs even more than in any other sector of business, market size and the size of the funds operators can mobilise is competitively decisive. You can do what smaller players can’t, so you can set the pace of most of the innovations in the field.

This competitive advantage was multiplied by the almost entirely unregulated nature of the London and Wall Street centres. Such regulation as existed amounted only to rather vague, non-legal guidelines agreed by central banks in the Bank for International Settlements. This, together with scale advantages, not only maintained Wall Street’s dominance but started a corrosive process of undermining the public regulation of financial operators within other states, as operators there escaped off-shore themselves to compete, found ways around local rules and exerted pressures on their governments to liberalise in order to enable them to compete against Wall Street.

As we saw above, it is dangerous for banking systems if banks’ operations are allowed to go unregulated. Unbridled competition between banks leads them to compete with each other to the point of collapse. But because of the dominance of Wall Street in private international finance, what competition, what regulation and what international arrangements for banks becoming insolvent should be established became questions largely in the hands of the American government, in alliance with the British authorities. If the US government chose not to regulate, it became extremely difficult for the other main capitalist states to maintain their regulatory frameworks. If the US decided to regulate, other banking authorities would follow suit, but the US could still largely dictate the form and scope of regulation. Thus a whole chain-reaction of effects and pressures on banking systems around the world was unleashed by the decisions taken in Washington.

Let us mention some of these chain reactions. First, the US Federal Reserve could largely dictate the levels of international interest rates through moving US domestic interest rates. It could thus determine the costs of credit internationally, with enormously powerful effects on other economies. When international private credit is cheap economic operators with access to cheap international credit start projects which seem viable in the current conditions. But if US decisions suddenly make credit very expensive, fundamentally sound enterprises may find themselves going bankrupt because of a sudden contraction of cheap credit. And an international financial system dominated by the US financial market can swing wildly, oversupplying credit at one moment and dramatically contracting it at another. To make matters worse, the tempo of the US business cycle is impossible to predict with accuracy and the direction of US policy is equally impossible to predict because the US has qualitatively greater freedom of policy choice as a result of its dominant political position in the international economy.

Secondly, through its regulatory interventions or the lack of them, Washington was the manager of what might be called the micro-economics of international finance: it could dictate how much regulation and supervision of bank lending there would be. De facto it managed the international tension between encouraging the banks to take risks and preventing them from acting recklessly and then collapsing. Frequently during the last quarter of a century, Washington has been happy to forget about regulating its international financial operators, whether, as in the 1970s there are the big US money-centre commercial banks or whether they are the investment banks or the hedge funds of the 1990s. When this happens, enormous competitive pressures are placed upon financial operators elsewhere, and they pressurise their governments to relax their regulations, or find ways of evading what regulations exist. The cry is often heard in Washington that for technological or other reasons regulation is impossible. But when it suits Washington to introduce regulation it has been shown to have been able to achieve it, with remarkable ease.

This was shown with the so-called Basle Accord of 1988 laying down guidelines for international banking supervision. The Basle Accord was achieved through the US government forming an alliance with London for a joint Anglo-American regulatory regime. This was enough to ensure that all other OECD governments would come together to establish a common regime. The resulting regime has been a ‘gentleman’s agreement’. And the result of the accord was a regulatory regime skewed towards serving US interests since it gives all banks an incentive to privilege the buying of government bonds, a pressing US need, given its government’s indebtedness, and a disincentive to lend to industry. This Accord demonstrated just how easy it is for states to regulate international financial markets, on one condition: that the regulation is done with US support.

Thirdly and very importantly, US governments discovered a way of combining unregulated international banking and financial markets with minimal risk of the US banking and financial systems suffering a resulting collapse. Using its control over the IMF/WB and largely with the support of its European partners, Washington discovered that when its international financial operators reached the point of insolvency through their international operations, they could be bailed out by the populations of the borrower countries at almost no significant cost to the US economy. This solution was first hit upon during the Latin American international financial crisis at the start of the 1980s and it was a solution with really major economic and political significance. We will return to this experience later.

At the same time, the US government developed ways of extending the influence of Wall Street over international finance without putting its big commercial banks at risk. It successfully sought to change the form of lending to the more rentier-friendly bond market and towards more short-term lending rather than medium or long term bank loans.

The final and most important area in which Wall Street dominance over international finance has political significance lies in the fact that financial systems are both enormously important parts of any capitalist system and they are at the same time interwoven with core control functions of capitalist states. It is through its control over financial flows that capitalist states exercise much of their political power over society. Insofar as Wall Street could strengthen its linkages with national financial systems, breaking down state barriers to the thickening of linkages with domestic financial systems, these latter would tend to slip out of the control of their domestic states. In a crisis within a national financial system, the American state itself could open the whole capitalist system of the state concerned to being re-engineered in the interests of American capitalism.

Just as the state plays a central role in domestic monetary and financial affairs, whether the domestic regime is Keynesian in structure or neo-liberal, so the main states or state play a central role in international monetary and financial affairs. The fact that these continual political interventions in these central aspects of the international economy tend not to register in much of the literature on international economics is the result of ideological blinkers, all the more powerful for being entrenched in the professional academic division of labour between political science and economics. These blinkers are evident in those definitions of globalization which suggest it is a purely techno-economic force not only separate from state-political controls but inimical to them.

But these blinkers are re-enforced also by the fact that state political influence over the international monetary and financial system is not neatly parcelled out between states. To put it mildly, political influence in these areas is distributed asymmetrically: during the last quarter of a century it has been distributed overwhelmingly to one single state. Under the Bretton Woods regime, there was something like a global authority, resting on the co-operative agreements laid down in the 1940s: gold functioned as a supranational monetary anchor, the IMF and Central Banks sought to manage monetary and financial flows. Of course, the US was overwhelmingly the most influential player within this IMF system. But it too was constrained in what it could do by the supranational rules of the system. The central point about the new, post-Nixon regime was that the US was still overwhelmingly dominant but not it was not constrained by rules. The Dollar-Wall Street Regime has been a bit like the British constitution: the dominant power has been able to make up the rules as it went along. The US could decide the Dollar price and it could also have the deciding influence on the evolving dynamics of international financial relations.

So we arrive at a question of absolutely cardinal importance both economically and politically: would the US government run the new Dollar-Wall Street Regime in the American national interest? Or would the United States government rise above mere national interest and pretend it was a supranational world government subordinating all national interests including those of the USA to the collective global interest? Or would the US government steer a middle course and set up a collegiate board of the main capitalist states in a more or less large (or small) oligarchy in which the US would compromise its national interest to some extent for the collective good of the oligarchy?

The answer is that the United States government has done its constitutional duty. It has put America first. The whole point of the Nixon moves to destroy the Bretton Woods system and set up the Dollar-Wall Street regime was to put American first.

There is a straightforward test that can be applied to detect the direction in which US policy has been applied. Has the US sought to establish rules and instruments for the effective public management of international money and international finance within the DWSR of the kind shown to be necessary in domestic economic management? We can run through the check-list of issues:

1. There is a very strong international interest in international monetary stability. Yet instead, the DWSR has seen the price of the main international currency has been driven up and down in wild swings without historical precedent, swings that make even the 1930s look like an era of relative monetary calm! This extraordinary volatility has been the product of deliberate US policy and of Washington’s refusal to work towards a stable, rule-based system.

2. Public macro-regulation of the supply of credit within the world economy to ensure some measure of stability: instead international flows of credit have swung wildly from over-supply to chaotic contraction in cycle after cycle, again overwhelmingly because Washington has wished matters to be handled in this way.

3. Public micro-regulation of the main private credit suppliers to try to ensure minimally responsible behaviour, to try to restrict dangerous competitive pressures and prevent major collapses in either the financial sector or productive sector: instead of this there has been a free-for-all in this area, except insofar as the American government has wished to impose such regulation.

4. Public management of the interface between finance and the productive sector internationally to provide incentives for channelling funds into productive activity, rather than speculation, insider trading, market rigging and corruption: The record in this area speaks for itself: there has been a systematic drive to make state after state subordinate its management of productive activity to the unregulated dominance of international finance and to make all states increasingly powerless to resist such dominance (again using the IMF and the World Bank as central instruments against the role of public authorities in this area).

A number of authors have suggested that the subsequent history of US international monetary and financial policy has been bound by the rules of co-operative oligarchy with the rest of the G7. But the evidence for this is extremely weak as regards the main strategic lines of US policy. The existence of the G7 proves nothing except that the US has sought to use it to get the other main capitalist powers to do what the US has wanted. The fact that on many occasions other G7 countries have not been prepared to do the US’s bidding does not mean the US itself has adopted a collegiate approach. Some authors have pointed to the supposedly great significance of the 1978 Bonn summit as an instance of co-operative policy-making. It was, but in the form of Germany’s government agreeing to do most of what the US government wanted. And whatever co-operative spirit there was in the Carter administration vanished under Reagan. The strongest claim for collegiality in high monetary politics concerns the Plaza Accord to lower the dollar price in 1985. It is quite true that this meeting did agree to bring down the dollar and it subsequently was brought down. But as Destler and Randall Henning show, US Treasury Secretary Baker had already decided to bring down the dollar had already started to bring it down and was interested in using the G7 agreement as a tactical ploy within US domestic politics against those who were opposing his already decided policy for a fall in the dollar.

And in the management of international finance, the America First policy has been equally evident. During the 1970s, the US governments first treated the IMF with contempt (under Nixon), then allowed it to sink towards oblivion (in the late 1970s). What discussions on the regulation of international finance did take place shifted to the Bank for International Settlements and to bilateral discussions. The Reagan administration was at first downright hostile (and vitriolically hostile to the World Bank). It changed its tune towards these organisations not out of any abandonment of America First unilateralism, but because Baker saw, during the Latin American debt crisis just what extraordinarily valuable tools of American economic statecraft these two institutions could be, once their new, subordinate roles were defined. Oligarchic collegiality had nothing to do with the matter. The record is one of US administrations seeking to be extremely collegial, provided the co-operation is about working together along the lines of action laid down in Washington already.

A whole academic paradigm has been constructed in the United States to justify this American unilateralism. This explains that there can be stability in international monetary affairs only when one single power is overwhelmingly dominant (hegemonic). The theory goes on to explain the turbulence: it is because the US is no longer totally dominant. The theory has been intellectually demolished. But it at least has the merit of trying to explain the extraordinary behaviour of US governments in the management of international monetary affairs over the last quarter of a century.

This, then, brings us to a final question: if US policy over international monetary and financial affairs has been government by the US national interest, does this mean the perceived national economic interest or the national political interest or both? To prove a satisfactory answer to this question we need to have a theory of what the economic and political interests of capitalist states at the top of the international hierarchy of capitalist states actually are. This in turn requires a grasp of the dynamic internationalising drives within capitalism itself. We will not address these questions until later. Instead, we will simply restrict ourselves to the propositions which we have sought to demonstrate so far: first that a new international regime for money and financial relations was created in the 1970s. Secondly, that the dynamics of this regime were inescapably and integrally tied to the behaviour of one state in the inter-state system (the USA) and of one financial market in the networks of international finance (‘Wall Street’). And thirdly, that US administrations followed their constitutional duties in approaching their management of this regime from a National Interest perspective.

We are now in a position to notice the pattern of functioning of the DWSR. The dollar is the international money to which all other convertible currencies are linked by exchange rates. The American government chooses not to seek fixed exchange rates with the other main currencies, since that would require the US government to give up its use of the dollar price as an instrument for achieving other goals. Therefore, under the regime, the dollar moves in great gyrations up and down against the other currencies, utterly transforming their trading and other environments. And within these macro-swings there is constant micro-volatility. States and economic operators around the world must structurally adapt their operations to this constant macro and micro volatility of the dollar or risk various kinds of domestic economic imbalance or crisis.

At the same time the American-dominated international financial market and its private financial operators inter-act to an ever-greater extent with the international monetary relations of the dollar system. The dollar’s dominance as the international currency means that states build up foreign exchange reserves mainly in dollars. Exchange rate turbulence means that states wishing to try to maintain the stability of their own currency need larger reserves than before. These reserves are placed in the US financial markets (such as US Treasury bonds) because their liquidity means the funds can easily be withdrawn for exchange rate stabilisation purposes. At the same time, Wall Street offers the most competitive terms for governments wishing to borrow money for various purposes (including defending their currencies) and it offers new instruments so that governments and economic operators can tackle problems of exchange rate turbulence: not only a vastly expanding foreign exchange market but a whole new range of so-called derivative markets such as forward foreign exchange derivatives, swaps of currencies, loans etc. Although many attribute these innovations to ‘technology’, they are simply a creative response to enormous turbulence in the currency markets: the forward foreign exchange markets and interest rate swaps markets, for example, enable operators to hedge against the risk of future shifts in currency prices.

Much of the globalization literature which seeks to persuade us of the unstoppable, crushing strength of ‘international capital markets’ refers us to the huge size of the foreign exchange derivatives markets, the huge volumes of currencies traded in the foreign exchange markets or the extraordinarily rapid turnover in the US Treasury bond markets. Yet these volumes are overwhelmingly the result of politically-driven volatility in international monetary relations.

To cope with their volatile environment, governments borrow from the private financial markets, but such borrowings are typically themselves subject to volatile repayment terms (by being linked to movements in US short-term interest rates) and furthermore they are borrowing in dollars and since the dollar swings wildly, the value of their debts (in terms of real domestic resource claims) will vary with their exchange rates with the dollar. Thus the links with Wall Street subject borrowers to further turbulence.

The international dynamics of the regime then interact with domestic economic management on the part of individual governments. Sudden swings in the dollar produce sudden swings in a state’s trade balance and terms of trade. The government faces a choice: use Wall Street borrowing as a cushion, or engage in domestic macro-economic adjustment. Ease of the latter choice depends on the domestic socio-political strength of the government: can it easily balance its budget and right a trade deficit by imposing costs on various domestic social groups or not? If this is difficult, the government may choose to borrow dollars from Wall Street. When Wall Street is flush with inflowing funds, it is eager, if not desperate to lend and offers governments inducements to borrow. But this may only cause a greater adjustment problem down the road, a problem which can strike suddenly through a further shift in the dollar or in US interest rates (or Treasury bond rates).

These dilemmas are faced particularly acutely by economies weakly inserted in international product markets, with weak economies and adjustment problems which the governments are too weak socio-politically to manage. These problems are, of course especially prevalent in countries of the South. Thus the regime systematically generates payments and financial crises in the South. Every year one country after another suffers financial crises. As the Wall Street economist Henry Kaufman points out, national financial crises "have come repeatedly on the international side in the last 20 years." An internationally provoked crisis then provides the role of the IMF/WB in the regime as auxiliary players. If such financial breakdowns were not a systematic element in the regime, the IMF’s role would have been marginal, if not redundant. Their task is to ensure that the state concerned adjusts domestically so that it can maintain the servicing of its Wall Street debts. At the same time the IMF acts internationally in the way that a domestic state acts when its central financial operators get into trouble: it bails them out. But there is a crucial difference in the international field. When an American bank gets into trouble in the American domestic economy the US tax-payer bails it out. But when the same American bank gets into trouble abroad, the bailout is paid for not by the American tax-payer but by the population of the borrowing country. Thus the bank’s risk is borne by the people of the borrower country, via the IMF’s auspices.

Through IMF/WB intervention the state in crisis is eventually able to re-integrate into the DWSR, but this time with heavy debt-servicing problems and usually with a weakened domestic financial and economic structure. Meanwhile the external environment is as volatile as ever and the state concerned is more likely than not to face a further financial blow-out in the not too distant future.

But one of the paradoxes of the DWSR is that such financial crises in the South do not weaken the regime: they actually strengthen it. In the first place, in the crises, funds tend to flee from private wealth holders in the state concerned into Wall Street, thus deepening and strengthening the Wall Street pole. Thus during the debt crises of the early 1980s in Latin America, the following very large outflows of funds occurred: from Argentina, $15.3Bn; from Mexico $32.7bn, from Venezuela, $10.8Bn. Secondly, to pay off its now higher debts the state concerned must export into the dollar area to find the resources for debt servicing. This further strengthens the centrality of the dollar. Thirdly, the risks faced by US financial operators are widely covered by the IMF, enabling them to return to international activity more aggressively than ever. Finally the weakening of the states of the South strengthens the bargaining power of the Wall Street credit institutions in decisions on the form of future financing. Forms which are safer for the creditor money capitalist are increasingly adopted: securitised debt and short-term loans rather than long-term loans. And so on and so on.

Through all the gyrations of American policies for the world economy, the DWSR has remained firmly in place, constantly reproducing itself. In 1995 the dollar still remained overwhelmingly the dominant world currency: it comprised 61.5% of all central bank foreign exchange reserves; it was the currency in which 76.8% of all international bank loans were denominated, in which 39.5% of all international bond issues were denominated, and 44.3% of all Eurocurrency deposits; the dollar also served as the invoicing currency for 47.6% of world trade and was one of the two currencies in 83% of all foreign exchange transactions. And if intra-European transactions were eliminated from these figures, the dollar’s dominance over all other transactions in the categories listed above becomes overwhelming.

The notion that there are regimes in international relations was first put forward in the 1970s by Robert Keohane and Joseph Nye, and was given its classic definition by Stephen Krasner in 1983. Krasner defined regimes as ‘principles, norms, rules and decision-making procedures around which actor expectations converge in a given issue area’. This concept has become extremely influential in the analysis of international relations and in the functioning of multi-lateral organisations. The notion of regime which is used here overlaps in some respects with Krasner’s notion but differs with it in certain fundamental respects.

The DWSR is a regime in Krasner’s sense in three respects. First, it corresponds to the idea that international relations do not consist simply of states inter-acting with each other in an anarchic void alongside economic operators interacting with each other as atoms in a world market. There are patterned, structured regimes governing these interactions. The DWSR is a regime in this sense of an international mechanism which structures and patterns interactions. Secondly, the DWSR corresponds to the idea implicit in Krasner’s notion, that the states participating in these regimes do so because they find it in their interest to co-operate in the regime. This is true also of the DWSR. Thirdly, Krasner is prepared to accept that one state, the dominant state, is often the decisive and even unilateral actor in establishing the regime: it is not to be imagined that it is established consensually or in a collegial fashion. This imposed character of a regime can apply also to the DWSR.

But here the agreement ends. Krasner conceives of his regimes as being quasi-legal in character. States have, in his view, come to adopt a set of rules or norms or principles or a fixed set of collective decision-making procedures. Yet dollar dominance and the governing of international currency prices by the dollar exchange rate is not a quasi-legal norm or rule: it is a fact which regularly reproduces itself. All states that maintain any degree of currency convertibility participate in this fact: the price of their currency will be fixed, directly or indirectly in relation to the dollar. States do have the option of exit from the regime: they can make their currency inconvertible. But if they do they will tend to be excluded from significant participation in the world economy. And the fact that states do participate in the regime does not indicate that they find it beneficial: it simply indicates that they lack the power to do anything about it.

The same applies to the other pole of the regime: the American financial market. States and economic operators do not have to participate in this market. They can avoid placing their reserves there, they can avoid borrowing there, but in practice it is almost impossible for them to avoid being drawn in because of their need for finance for their economic activities as a whole. And if they need to borrow from abroad, the most economically rational source of borrowing is from the biggest most competitive/unregulated and most liquid markets -- Wall Street.

There is another problem with the Krasner definition. Its attempts to present regimes as operating within discreet ‘issue areas’. The DWSR does not occupy an ‘ issue area’: it occupies a position as the monetary and financial framework facing states in their attempts to come to grips with a vast range of issue areas in international and domestic politics and economics. And the attempt to confine regimes to ‘issue areas’ chops reality up in trivialising ways: there is no equivalence of kind between an international legal regime for ensuring air safety and a framework regime like the DWSR. A further problem lies in the fact that regime theorists will tend to treat institutions like the IMF/WB as Krasner-type regimes, divorcing them from the patterned regularities of the DWSR in which they operate and which gives meaning to the dynamics of the IMF/WB’s activities. And a final problem with the Krasner definition of regimes is that it presupposes a separation between regimes on the one side and both states and markets. Yet the DWSR includes as integral parts of its structures both states and markets.

After Nixon the story of US administrations and the DWSR is a mixture of two strands: first, an extraordinary series of gambles both with the dollar and with international private finance, in both cases exploiting the regime; and second, a growing belief in the central importance of the DWSR for US international interests and attempts to deepen the DWSR and radicalise it. These two themes both involved an approach of ‘America first’, but there was no consistent master plan until the 1990s and the Clinton administration. Rather, a strategic view of the regime’s role in a US national strategy emerged gradually, often in the midst of crises caused by earlier gambles going wrong. At every stage, American administrations managed to expel the costs of these blunders outwards onto others and throw themselves into new tactics which had the effect of deepening the regime. Only in the 1990s, and especially under the Clinton administration, did a consensus seem to emerge within the American capitalist class that maybe at last they had discovered a master plan, comprehensive in scope and with all the tactical instruments for its ultimate complete success. But this too, in the form pursued by the Clinton administration may also turn out to be another blundering gamble. Each phase of this story does not end with the world back where it started. Instead it is marked by a constant evolution of the inner logic of a DWSR exploited in American interests

The Carter administration was attempting to use a low dollar to maintain some sort of growth strategy centred on the industrial sector and on traditional quasi-Keynesian techniques. Between 1975 and 1979 the dollar lost over a quarter of its value against the Yen and the Mark as the Carter administration sought to boost output and exports of the US manufacturing sector. At the same time, apart from its interest in using the flexible dollar-price for industrial policy, the Carter administration was indifferent to the potentialities of developing or exploiting the DWSR.

Matters changed only with the Reagan administration. The turn in dollar policy had begun before Reagan’s election. Worried that the dollar’s fall might slip out of control and worried about rising inflation combined with industrial overcapacity, Federal Reserve Chairman Volcker made his famous turn, jacking up interest rates, swinging towards a strong dollar and a drive to restore money’s role as a stable standard of value (rather than just as an inflationary means of circulation). These steps were taken much further by the Reagan administration.

The central features of the Reaganite turn in matters of political economy were twofold: first, to put money-capital in the policy saddle for the first time in decades; and secondly to extend and exploit the DWSR in the interests of America first. Putting money capital in the saddle involved squeezing out inflation (which eroded royalties on money capital), taking steps to deregulate the banking and financial sector, offering huge tax cuts for the rich which always boost the financial sector and rentier activity and pursuing a high dollar policy. Industrial growth would be driven principally by a great expansion of the defence budget, running an expanding budget deficit and sucking in capital from abroad. This aspect of policy essentially meant that the US state was acting as a surrogate export market for the industrial sector. The new dominance of money capital and the anti-inflation drive was essentially an incentive to employers of capital to begin an assault on the power, rights and security of their workers to restore profitability.

But Reagan’s team also began to seek to deepen the DWSR, initially as a pragmatic set of solutions to discreet problems. Thus, maintaining a very high dollar could have meant chokingly high US domestic interest rates unless the US government could attract very large inward flows of funds into US financial markets. To achieve such flows, it began a drive to get rid of capital controls in other OECD countries, especially Japan and Western Europe. Thus began a long campaign to dismantle capital controls.

The first decision of the Thatcher administration on coming into office in 1979 had been to end British controls over financial movements. Holland followed in 1981 and Chancellor Kohl swiftly did the same in 1982 on coming into office. A major breakthrough for the campaign came with the French government’s decision in 1984 to promote the idea of the European Single Market: this was above all a decision to remove controls on financial movements throughout Western Europe. Denmark liberalised in 1988, Italy started a phased liberalisation in the same year and France started phasing out capital controls in 1989. During the 1980s, the US pressured the Japanese government with some success to liberalise its restrictions on the free exit and entry of funds. This was a major step in boosting the size and weight of the Anglo-American financial markets.

At the same time, the turn to the high dollar/high interest rates posture from the Volcker shift in 1979 set the stage for the Latin American and East Central European debt crises of the early 1980s. Volcker did not raise interest rates and support a high dollar in order to produce this crisis. It nearly produced a collapse in the US banking system, but in the course of managing the crisis, the Reaganites, who were very interested in bringing Third World capitalisms to heel, learned some very powerful lessons. They learned an old truth from the days of European imperialism: the imperial power could take advantage of a country’s debt crisis to reorganise its internal social relations of production in such as way as to favour the penetration of its own capitals into that country. Thus started the use of the DWSR to open countries’s domestic financial regimes and domestic product markets to American operators. The second lesson, learnt by American financial operators, was that the kinds of long or medium-term syndicated bank loans used for recycling the petrodollars was too rigid since it locked the funds of these banks up in the fates of the borrowing countries. Therefore they sought to shift towards much safer operations with interest-bearing capital: lending through bonds from which they could withdraw by trading them on the securities markets. They also learnt that they could get crisis-ridden target countries to build domestic stock markets and could start to play these as a profitable way to earn royalties. But these kinds of operations would require removing the controls on the capital accounts of such countries. Yet another fundamental lesson from the Latin American crisis was a very important paradox: financial crisis in a country of the South could actually boost Wall Street through capital flight. When a financial crisis hit a country, large funds would flee not only that country but others fearing contagion and the funds would flee to the Anglo-American financial nexus, boosting liquidity, lowering interest rates and having a generally healthy impact.

And the final, and in some ways most important lesson was that the IMF/World Bank were not, after all, a waste of time for American capitalism. With the establishment of the DWSR, the IMF was elbowed out of the way by the US Treasury and the US financial markets and seemed headed for history’s proverbial dustbin. Reagan came in with no intention of reviving it. As for the World Bank, the Reaganites viewed it as a semi-subversive institution, saturated with old-style quasi-Keynesian 1950s US ‘development’ nonsense. But Reagan’s Treasury Secretary, James Baker, learnt in the debt crisis just what a powerful tool these bodies could be as facade-cosmopolitan agencies for advancing the interests of American capitalism. Thus from the unveiling of the so-called Baker Plan for generalised ‘Structural Adjustment’ in Seoul in 1985 the IMF/WB found themselves with new international roles.

It is important to note how they have served above all US interests: they have not done so mainly through conspiratorial manipulation (which does not mean, of course, that there were no conspiracies -- there were no doubt lots -- hence the extraordinary veil of secrecy surrounding their decision-making). Instead their role has rested on two mechanisms: first by defending the integrity of the international financial system the IMF was defending a system of US exploitation of the DWSR. Second, by restructuring domestic economies to enable them to pay off their debts, the WB was adapting them to the same US-centred international system: the necessities of its structure pushed them towards domestic deflation, currency devaluation and an export drive along with measures to ease budget deficits and earn foreign currency on the capital account by privatising with the help of foreign capital and attracting inward flows of hard-currency funds through liberalising the capital account. Thus did US rentiers get their debts paid, US industry got cheaper imports of the inputs needed for production, US companies could buy up assets including privatised utilities in the country concerned, and the capital account would be liberalised so that local stock markets could be played. And the whole system could be made even more rule-based by the fact that neo-classical economics supplies us with hundreds of rules and norms and almost all of them are never quite operating in any country at any time. So the IMF and WB could simply pick and choose whichever aspect of a domestic economy they wanted to concentrate change upon and could always point to some rule or norm of neoclassical economics that was not being met!

Just as the Nixon-Ford-Carter phase left a hang-over for the Reaganites, so the Reagan period left a hangover for Bush: this time the huge double deficits on the balance of payments and the deficit and no money in the kitty for exerting influence over the Soviet Bloc region as it collapsed, especially because of the domestic speculative blow-out in the housing sector of the financial system. But the dialectics of progress through blundering gambles continued to work since the debt crisis had produced a development of the DWSR which could be exploited by the US to overcome its weaknesses in its efforts to dominate developments in Russia and Eastern Europe. The IMF-Structural Adjustment sub-system could be imposed upon the region with the claim that it was the new global development paradigm and not an ad hoc device for serving US interests in the Latin American crisis. Bush showed great skill in persuading the West Europeans to knuckle under to IMF (US Treasury) leadership over the transition in the East and the result was to perpetuate and strengthen the reach of the DWSR, giving great scope for US financial operators to link up with the ex- nomenklaturas of the region in orgies of speculative, corrupt and extremely profitable ventures, through privatisations, through using local stock markets as playthings in the hands of US investment banks, through using dollars to buy huge quantities of assets in Russia and elsewhere, through earning extraordinarily high yields on East European government debt in the bond markets, through enormous injections of (largely criminal) East European flight capital into the Anglo-American markets and through, at every turn, taking large, juicy fees for services rendered. It was, all in all a remarkable success story, especially given the fact that the catastrophic costs of the whole enterprise lie in far away Eastern Europe as a problem which the West Europeans have to try to contain, no doubt with the help of NATO.

At the time that Clinton became President in 1993 the DWSR had thus sustained itself for a full twenty years. The dollar was still the overwhelmingly dominant international currency and the weight of Wall Street in the international economy was far greater than it had been in the 1970s. The various kinds of boundaries which had existed between national financial and economic systems and the Wall Street-centred international financial markets had been eroded and in some countries almost entirely swept away. And the linkages between countries in the former Eastern Bloc and the South with Wall Street had been greatly strengthened through debt dependence, while the form of that debt dependence was changing from one based upon long or medium-term bank loans to one based upon debt securities or short-term loans -- a form of dependence far more vulnerable to short-term movements in the Wall Street securities markets. Alongside these developments the other main feature of the regime’s evolution was the increasingly important role of the IMF as a public authority for managing the effects of the regime on countries of the South and former Eastern Bloc. The IMF was not acting as a public authority above all states but as a public authority for transmitting the policy of the states controlling it -- which meant, above all the USA --into the states in varying degrees of crisis as a result of the regime’s operations.

During the Clinton administration, as we shall see, there would be a drive to radicalise the DWSR both to sweep away the barriers between the Wall Street-centred international financial markets and nation states and to impose a new set of restrictions on the domestic actions of nation states. There would also be a dramatic attempt to radicalise the way the US government used the DWSR for the purposes of national economic statecraft. But before examining the Clinton period we will briefly survey the impact of the DWSR on the rest of the international political economy during the period from the 1970s to the early 1990s.

Up to now we have concentrated only upon the role of the US in the DWSR. But we must briefly survey the responses of the other main components of the world economy to this system since its launch in the 1970s.

During the post-war period, the core of the world economy was made up of a German-centred Western Europe and Japan, along with North America. The revival of the capitalisms at the two opposite ends of Eurasia had followed very different patterns from the angle of international political economy. Germany’s revival was built upon the development of deepening regional links within Western Europe. Japan’s revival took place largely in regional isolation and through deepening links with first the American and then also with the West European markets. Thus the move towards the dollar-Wall Street system in the 1970s had very different impacts upon these two non-American centres, as we shall see. Neither the leaders of German capitalism nor those of Japan welcomed or approved of either the inauguration or the evolution of the DWSR nor of the various ways is which the US has sought to exploit it. On the other hand, in both regions the DWSR regime has had its supporters and even enthusiasts, especially, of course, in countries like Britain and Holland with powerful financial sectors and amongst those most closely involved with private international finance.

Both Western Europe and Japan were, of course, extremely hostile to and worried by the international monetary chaos inaugurated by the DWSR in the early 1970s. The West European responses developed along four axes. First a defensive response to the regime in the monetary field by building a new regional monetary regime in Western Europe: the exchange rate mechanism, leading towards a full monetary union. Secondly, a shift towards a new accumulation strategy which placed money capital in dominance over employers of capital. Thirdly, an attempt to exploit the DWSR internationally; and fourthly, an intra-European conflict over the role of rentier capitalism within Western European society. We will look at each of these strands in turn.

1. The regional monetary regime: without of defensive regional response to the DWSR the development of the European Community towards a customs union would have been destroyed by chaotic intra-European currency movements which would have made a mockery of intra-European free trade. So Germany was able to persuade its main West European partners to manage their currencies under Deutschmark leadership. In this way, monetary stability could be maintained within Western Europe. The Mark would be the point of contact between the West European economy and the wild dollar. And German governments in the 1970s were prepared to claim that their leadership would be just a phase on the road to full monetary union (as the French wanted). Despite a very shaky start in the 1970s and various crises in the 1980s and 1990s, this system has held.

The Soviet Bloc collapse raised uncertainty about this system, through raising uncertainty about the future direction of German capitalism. Chancellor Kohl responded with the decision to maintain the regional arrangements by deepening them into full monetary union. This decision has held.

2. Free financial flows and the new centrality of money-capital: A number of West European states sought to maintain the Keynesian mode of accumulation in which industrial capital’s expansion was the central target of po