Dollar Hegemony,“Monetary Geopolitics” and the IMF: The Symbiosis Between Global Finance and Power Politics!

• Dollar Hegemony,“Monetary Geopolitics” and the IMF: The Symbiosis between Global Finance and Power Politics! 
  by José Miguel Alonso Trabanco, http://www.globalresearch.ca/
  The following article is part II of a longer text pertaining to Hegemonic Currencies and Monetary Geopolitics.
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  Part I of this text  is Honey Traps”: The Strauss-Kahn Affair, A Stealthy Coup d’état at the IMF?
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  «Money brings honor, friends, conquests and realms» –John Milton
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  This study is incomprehensible unless one acknowledges that “the management of money is always and everywhere political [and that…] even in the esoteric realm of money, international relations still reflect, to some extent, the interests of powerful states” (Kirshner, 2003).
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  Along these lines, since Classical Antiquity, there has always been a strong connection between wealth and military power and therefore, in the most simple and direct way, between economics and national security. Not surprisingly, modern times are not so different. (Friedberg, 1991).
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  Therefore, the trends that rule the behavior of currencies are strikingly similar to those that govern the conduct of national states. They both seek dominance in highly hierarchical and dynamic systems where competition, conflict and confrontation are commonplace. They both gain and lose power and prestige at the expense of one another in zero-sum games (Cohen, 2003). Therefore, “the realpolitik balancing instinct would apply to currency politics as well as geopolitics” (Drezner, 2010).
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  The evident overlapping parallel implies that, paraphrasing Robert Mundell (1993), powerful States have powerful currencies. In fact, history provides many examples that demonstrate that “currency can enhance the power of the state that issues it” (Cohen, 2009). Thus, it would be mistaken to disregard that “Money Rules – now more than ever – but those rules serve political masters [so] students of money in general and political scientists most particularly must return to that basic starting point – money is politics”. (Kirshner, 2003).Indeed, “World history demonstrates that there is a close relationship between monetary systems and war and peace”(Lips, 2004).
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  Furthermore, since the dawn of human civilization, the issuance of currency has invariably carried heavy political connotations related to territorial considerations: “governments have been assumed to enjoy a natural right of monopoly control over the issue and management of money within their borders [and following a model akin to a]Westphalian model of monetary geography […whereby] each state was expected to maintain its own exclusive territorial currency” (Cohen, 2008).
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  Consequently, not unlike nations, currencies rise and fall too. “An examination of the long history of reserve currencies shows the tendency for one currency to dominate, with any change in status often reflecting a shift or rebalancing of economic and political power” (Lee, 2010). Accordingly, “currency internationalization does indeed impact directly on the power position of issuing states” (Cohen, 2009).
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  Hence, there seems to be a persistent symbiotic link between geopolitics and finance that represents an element which is considered by statesmen in order to properly assess national power. Indeed, it is known that nowadays Central Bankers and political leaders actively collect intelligence information on the behavior of currencies and periodically test their relative strength, in order to “adjust their strategies accordingly” (Stroupe, 2005).
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  However, hegemonies, both geopolitical and monetary, are not perpetual: “historical experience demonstrates the speed and pervasiveness of changes in national economic power; since hegemony is transitory, so must be any international monetary system that takes hegemony as its basis” (Eichengreen, 2003), which indicates that “the international monetary system has always rested and depended upon political foundations” (Kirshner, 2003).
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  The following graph, based on data from a study on the evolution of monetary hegemony (Dwyer & Lothian, 2002), shows the historic succession of dominant international currencies from the 5th century B.C. onwards. Not surprisingly, as can be clearly seen, currencies occupy a dominant position when the nation that mints them becomes a great power.
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  However, “since states are no longer able to exercise supreme control over the circulation and use of money within their own frontiers, they must instead do what they can to preserve or promote market share. As a result, the population of the monetary universe is becoming ever more stratified, assuming the appearance of a vast Currency Pyramid — narrow at the top, where the strongest monies dominate; and increasingly broad below, reflecting varying degrees of competitive inferiority” (Cohen, 2003).
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  At this point, it is important to emphasize that ‘reserve currency’ status is the highest position a currency can attain because it is “something which evolves over time through combination of international economic and political power and convenience to the greatest number of users rather than abruptly as the result of conscious decisions by a single country”(Eslake, 2009). Moreover, there are other evident advantages provided that “the issuers of currencies that are widely used by others as reserve assets […] can finance deficits simply by printing more of their own money” (Cohen, 2008). Therefore, there is a “link between the distribution of economic power and the allocation of reserve currencies” (Drezner, 2010). Hence, “the great bulk of reserves is held in the form of highly liquid assets denominated in one of the small handful of moneys at the peak of the Currency Pyramid” (Cohen, 2009). A reserve currency is thus defined by three essential attributes:
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