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JSPES, Vol. 30, No. 3 (Fall 2005)
pp. 333-259

Structural Power and the Politics of International Monetary Relations

Matthias Kaelberer

What are the sources of monetary power and how does the concept of monetary power explain the politics of international monetary relations? This paper argues that international monetary power rests on the differential domestic costs of macroeconomic adjustment obligations between weak and strong currency countries. At their very core, exchange rate relations reflect questions of how to distribute the burden of adjustment. Monetary interdependence implies that countries need to establish consistency between internal macroeconomic policy and external exchange rate policy. Countries solve the consistency issue on the basis of market power. Strong monetary players have greater bargaining leverage in monetary negotiations because they do not face a reserve constraint. They can use their leverage to protect their own domestic macroeconomic priorities and to compromise merely on questions of external adjustment and financing. The paper evaluates these analytical assumptions by comparing two European exchange rate regimes (the snake and the European Monetary System), the Bretton Woods system of 1944 to 1971 and the current monetary relations between the United States and China (often referred to as Bretton Woods II).