Public International Law/International Economic Law/Monetary Law





Author: Kanad Bagchi "Required knowledge: Link" "Learning objectives: Understanding XY."

A. Introduction
Even though money has been a crucial instrument of political and social control, the international legal framework around it still remains largely understudied. International monetary law (IML) occupies much less attention within debates on international economic law, as against international trade and investment, for instance. This has meant that questions concerning monetary autonomy, sovereignty, and the way international law deals with monetary conflicts and determines the distribution of rights and obligations remain largely ignored in legal scholarship. What is also missing is a systematic engagement with how money sustains not only the infrastructure of world capitalist expansion, but is also an important instrument of hierarchy, subordination, and imperial expropriation.

In this chapter, I attempt to open up a conversation about the manifold transformations that the field has witnessed in the last decades and how the study of monetary law accordingly needs to be reoriented. I focus on the structural changes in IML and the kind of questions which have become relevant today. In addition, I place IML in conversation with the politics of money and hierarchy in the international monetary system (IMS). This overview is necessarily going to be partial, hence every effort will be made to reference liberally, especially for some of us who might want to take the conversation further.

B. History(s) of International Monetary Law
Most accounts of international monetary law trace the origins of the field to the Bretton Woods Conference in 1945 and to the establishment of the International Monetary Fund (IMF/Fund). To be sure, Bretton Woods was a landmark event. It was the first time that a multilateral instrument for monetary coordination was established. It was also the first time that some semblance of participation of the ‘Third World’ in monetary affairs was envisioned, albeit in a very limited way. Against the backdrop of the inter-war years that witnessed several episodes of monetary and financial instability accompanied by discriminatory currency practices, the intention at Bretton Woods was to put in place an international organization with legal powers to enforce a code of conduct for monetary affairs. Thus, the IMF was given a permanent mandate for international monetary cooperation and far-reaching powers to impose sanctions. Scholars thereafter heralded the dawn of a new system, “a new kind of highly legalized multilateral monetary and financial order”, and the birth of a “public international law of money.”

This highly abstract and sanitized version of the origins of international monetary law erases the role that money and international law played in the longue durée of capitalism and imperialism. From the powerful Economic and Financial Organization (EFO) of the League of Nations (League) to the erstwhile Gold Standard adopted among imperial powers in the 19th century, money represented a crucial terrain for the civilizing mission as well as resistance to it. Control over money in the colonies was both a means to limit sovereignty, but also to conditionally grant it upon satisfactory transformation. Colonial currency systems were systematically placed subordinate to currency systems in the metropoles enabling the exploitation and extraction of wealth from the former. Moreover, the League was singularly responsible for the unequal economic integration of the mandated territories into the circuits of global capitalist accumulation. This was done through monetary reforms, austerity induced lending and the propagation of ideas regarding stable money and central bank independence – ideas we take for granted today. Much of what the IMF came to embody at Bretton Woods was an extension of the League’s powers of monetary and financial oversight – what we broadly refer to as monetary surveillance in contemporary IMF law. In other words, Bretton Woods did not signify a distinct break from the past. To the contrary, as TWAIL scholars have highlighted, the institutional structures of the IMF reflected deep continuities of the imperial order through other legal means. In other words, money then as it today, operates as a crucial medium of exclusion and inclusion between the core and the periphery.

The task then is to decenter the conventional story of BWS as birth of public international law of money, a story that effaces the history of money as an exploitative tool. Accounts of monetary law need to reckon with its colonial origins and illustrate the continuing forms of subordination and asymmetry embedded within the international monetary system – a point that we will come back to in the conclusion of this chapter.

C. The Scope of International Monetary Law
The scope and subject matter of international monetary law continues to be a matter of debate. The term ‘international monetary system’ was first introduced in the IMF Agreement. Yet, it was left undefined. This meant that much of what this ‘system’ would comprise and consequently the legal framework around it would be elaborated through institutional practise and adaptation. This gave international monetary institutions, including the IMF, a tremendous leeway in shaping the contours of the discipline and in expanding its own mandate for the regulation of money. To put it differently, the study of international monetary law must pay close attention to internal legal rules, procedural adaptation and soft legal frameworks underpinning the law of monetary institutions.

It was only in 2012 that the IMF would make the first attempt at defining the international monetary system, as well as the law governing it. In it, the IMF defined international monetary law as the collection of rules that govern the balance-of-payments relations among states. These include, as the IMF notes, rules on (1) exchange relations, (2) international payments (3) cross-border capital flows and (4) monetary reserve management – all of which determine a particular state’s monetary relationship with the rest of the world. In monetary law, the balance-of-payments relationship is the governing anchor and the institutional link among states. This is because national economies do not exist in isolation, but are intimately tied through a vast network of closely interconnected balance sheets and currency relations. Balance-of-payments however, is a zero-sum game in the sense that one country’s balance-of-payments deficit is another country’s balance-of-payments surplus. Much of the politics over money revolves around balance-of-payments adjustment and who bears the burden of such adjustment.

As one may notice, the IMF defines the IMS and the rules governing it from the perspective of a state’s external monetary relations. Exchange rates, capital flows, international payments, and monetary reserve management all pertain to how states interact with the currency systems of other states. Yet, several aspects of a state’s internal monetary affairs are also in significant ways determined by the strictures of international monetary law and institutions. Domestic central bank regulations, monetary policy frameworks, standards regarding central bank independence and transparency, as well as monetary crisis response, are conditioned by rules and ideational paradigms of international institutions tasked with governing money. In other words, international monetary law determines and shapes the contours of domestic monetary autonomy. Consequently, monetary sovereignty and what that implies is a contested terrain in which states and domestic monetary authorities continuously negotiate the bounds of autonomy and control over money. The scope of international monetary law, then, is neither fixed nor set in stone, but continues to evolve in response to changing law of monetary institutions.

D. Expanding Institutions
This raises an important question. Which institutions are relevant for the study of international monetary law?

I. International Monetary Fund
For the most part, international monetary law has had an outsized focus on the IMF. This is, of course, for good reasons. The Bretton Woods System put the IMF at the centre of international monetary relations. It was tasked with enforcing the par-value system of fixed but adjustable exchange rates – a purpose which it lost in 1971 when the US under President Nixon refused convertibility of the dollar in exchange for gold – an event that sent shockwaves across the international monetary system. Indeed, since then, the IMF evolved in multiple ways and its role within the IMS has changed significantly. The Second Amendment to the IMF agreement in 1979 granted it a new mandate for ‘firm surveillance’ and changed fundamentally the character of the IMS. Currencies that were tied to each other through an interlocking system of par values came to be free floating in the international market. The Fund has since then not only revamped its conditionality framework, but also expanded its surveillance infrastructure – a point which we will come back to in just a bit.

II. Bank for International Settlements
The IMF is neither the first nor the only institution tasked with monetary cooperation. We must go further back to the Bank for International Settlements (BIS) established in 1929 with a specific mandate “to promote the cooperation of central banks.” The uniqueness of the BIS lies in the fact that its membership comprises not states, but 63 central banks across the world. From an institution envisioned with a mandate to determine and settle financial reparations stemming from World War I, the BIS has evolved into a credible forum for central bank cooperation – hosting a number of influential committees dedicated towards promoting financial and monetary stability. The BIS has played an important role in setting monetary standards, creating coherent frameworks of knowledge as well as synthesizing monetary policy approaches. It has been the frontrunner in promoting global financial stability, macroprudential policies and capital flow regulation. Even though these standards lack legal enforcement they come with tremendous authority and are backed by market and peer mechanisms of enforcement. Its role in the international monetary system has been variously described as an anchor and think tank for monetary policy coordination. At least since the demise of the BWS of exchange rates in the 1970s, the BIS has “emerged as [a] competing source of international monetary authority.”

III. Informalization of International Monetary Law and Cooperation
The fall of Bretton Woods also resulted in the informalization of international monetary law and cooperation. This shift was transformational in the way it ushered a whole range of new actors in the monetary field. Already in the 1960, an influential group of ten (G10) industrial nations agreed to establish the General Agreements to Borrow (GAB) to supplement the resources of the IMF. GAB resulted in a system of a “double lock” on the resources of the IMF, such that decisions on conditional lending by the IMF would now require also the concurrence of the G10. Thereafter, informality would become a regular feature of international monetary law. The 1970s and the 1980s saw the rise of the G5 and the G7 as the principal forums for international monetary cooperation, much of which was transpiring outside of the IMF. As one commentator put it, “[T]he 1970s was a low point for the IMF as the official hub of international monetary coordination.” The developing world too resorted to informality and minilateralism by establishing the G24, with the mandate to coordinate joint actions, especially on international monetary and financial affairs.

With the Global Financial Crisis in 2008, another informal body, the G20, would acquire a lead role in the global governance of financial and monetary matters. The G20 was not simply a political forum comprising heads of states, but also a technical forum, which brought together finance ministers and central bankers. It gathered a greater legitimacy than the G5/G7 given the broader representation of the several developing countries in the G20. The G20 has engaged with several issues, such as the governance reform of the IMF, augmenting global monetary liquidity through additional SDR allocation, inducing balance-of-payments adjustments, and legitimizing the use of capital controls to arrest the volatility of international capital flows. Alongside the IMF, the G20 is regarded as an important “hub of global economic governance.”

IV. Decentralization in International Monetary Law
The GFC also prompted a decentralization in international monetary law, characterised by the creation of a number of regional monetary institutions in the Global South. Especially in Asia, three new institutions, namely, Chiang Mai Initiative Multilateralization (CMIM), BRICS Contingent Reserve Arrangement (CRA), and Eurasian Fund for Stabilization and Development (EFSD) were established in quick succession following the GFC. A common theme underlying the establishment of these arrangements was a sense of deep dissatisfaction with the nature and exclusivity of international monetary governance and the need for “self-insurance” against short-term liquidity shortages. All of them can be characterised as what are called ‘reserve pooling or liquidity sharing arrangements’, i.e., they entail a set of commitments undertaken by national central banks to provide short-term financing to member states facing balance-of-payment difficulties.

There is quite some dynamism in how these institutions have been established and in the scope of their mandates. While the EFSD and CRA were created through treaty mechanisms in 2009 and 2014 respectively, the CMIM was created through a ‘single multilateral swap arrangement’ among its member states in 2010. With a total size of swap commitments at $240 billion, a permanent secretariat, and an in-house monetary surveillance unit, the ASEAN+3 Macroeconomic Research Office (AMRO), CMIM is the largest and most sophisticated regional rescue fund outside Europe. Both the CRA and EFSD entail smaller contributions, yet, their appeal lies in the flexibility of their design. Unlike the CMIM, the CRA and EFSD lack a permanent secretariat. And neither of them possesses an independent legal personality – they are “multilateral agreement(s) without a funding institution.” The legal mandates of these institutions also vary considerably. While the CMIM and BRICS CRA are primarily geared towards forestalling short term balance-of-payments pressures and promoting mutual support, the EFSD is tasked to balance BOP concerns simultaneously with an attending focus on growth and development. This makes the EFSD a small but unique institution in the landscape of international monetary law.

The emergence of regional monetary institutions has been heralded as a new era of ‘South-South’ monetary coordination. Its distinctiveness lies in the fact that, unlike in the past, these newer mechanisms of coordination are being systematically institutionalized through an elaborate system of rules for monitoring, surveillance and dissemination of monetary policy standards. Much of legal scholarship has hardly paid any attention to monetary institutions outside the ‘West’. This has left a significant gap in the literature and in our understanding of how monetary law and coordination might look differently in other institutional spaces. What this brief survey illustrates is that the IMF is “not the only organization that has a place in the system.” We have shifting institutional configurations characterised by informality and regional monetary integration, and newer mechanisms through which the old multilateral order is being contested.

E. Expanding Interactions
The emerging institutional landscape is thus highly segmented, scattered, and multi-layered. In contrast to the top-down centralized system of international monetary coordination, which the BWS put in place, what we have today is a “decentralized, heterogeneous, pluripolar” global order for monetary coordination. In this setting, multiple institutions interact and compete for authority and also legitimacy. In other words, there is an evolving pattern of interaction among a range of different monetary institutions that govern the field, and it is these interactions which produce new sources of authority accompanied by a unique set of interventions.

For instance, G20 operates in a close relationship with and within an institutional space occupied by formal institutions, most notably the IMF. The IMF has gradually emerged as the G20’s closest ally. It formed the backbone of the G20 Mutual Assessment Procedure (MAP) - a mechanism of ‘peer review’ and collective policy action for balance-of-payment adjustments in member countries. Roped in by the G20 as its ‘technical advisor’, the IMF was tasked to evaluate key imbalances, how members' policies fit together, and whether they can achieve the G20's goals collectively. Conversely, for the IMF, assistance to G20 members brought “additional insights” into their policy plans and provided a separate channel to “reinforce the traction of its bilateral and multilateral surveillance of G20 members.”

Similarly, the IMF interacts very closely with regional monetary institutions. For instance, the constitutive documents of both CMIM and BRICS CRA provide for a substantive link with the IMF. Only a certain percentage (40% under the CMIM and 30% under CRA) of funds are readily available to member states without the involvement of the IMF. For any amount exceeding this limit, borrowing member states are required to enter into an IMF supported surveillance and lending programme. The central rationale for this linkage was so that liquidly arrangements under the CMIM and BRICS CRA go hand in hand with the IMF assistance. The EFSD too underscores the IMF to be a “key counterpart” in its own operations. The IMF has welcomed the creation and strengthening of regional monetary and financial institutions, especially as a compliment to the IMF and towards “supporting” the international monetary system as a whole. Recognizing this growing interaction, the G20 came up with principles for cooperation between the IMF and regional ﬁnancing arrangements, which must “take account of region-speciﬁc circumstances and the characteristics of RFAs.”

The crucial task of international monetary law scholarship, then, is to study how these interactions bring multiple institutions together, produce new sources of knowledge and effectuate different kinds of experimental interventions. Interestingly, we see both cooperation and contestation. The inflexibility of the IMF, its skewed system of quotas and voting and its coercive mechanism of enforcing conditionality were among the chief reasons for developing countries to go their own way. Moreover, some of these regional monetary institutions do not necessarily function within the paradigm of IMF orthodoxy. They have different mandates, different ways to measure compliance and sometimes radically opposing set of priorities. These institutions operate and are situated within a specific cultural, geographical and economic space which allows them to build closer and more lasting contact with domestic monetary authorities. This is the single most important reason as to why regional monetary institutions enjoy a high sense of “ownership” from its member states. An approach to monetary law that takes interactions seriously must be able to conceptualize the field in its varied manifestations and complexities, typified by a proliferation of institutions and legal frameworks.

F. Expanding Instruments
Conditional lending is an important function of international monetary institutions. Simply put, conditionality is the device by which monetary institutions lend financial resources on the satisfactory fulfilment of certain prescriptions by the receiving state, which is expected to solve its BOP crisis. For the IMF, the legal basis of conditionality is usually traced to Article V, section 3 (a) of the IMF agreement, which refers to “conditions governing use of the Fund's general resources” and calls upon the IMF to establish “adequate safeguard” for the use of its funds. The parameters for conditionality, its content and scope have, however, evolved through practise and internal law making. Over the years, conditional lending has transformed into a mammoth exercise with several distinct regimes, facilities, adjustment programmes depending on the development parameters of the member in question and its capacity for repayment. Conditional lending, especially its more structural kind, has faced tremendous criticism, and rightly so, as being “overly extensive, intrusive and deflationary” - often drawing the ire of governments and civil society organizations. Conditionality has been associated with a “one size fits all” approach where standard prescriptions for deregulation, greater capital account openness, labour market reforms, deficit reduction and large-scale austerity programmes, are prescribed across the board. This has occasioned a substantial overhaul of the IMF conditionality lending, including a clear preference for ex-ante as opposed to ex-post conditionality, as well as quicker disbursement.

The resistance against IMF conditionality and later World Bank structural adjustment programmes ushered in a change of strategy within these institutions. In the last decades and at least since the fall of the BWS in 1971, a big part of the function of monetary institutions has focused on monetary surveillance. The Second Amendment to the IMF Agreement in 1979 and revised Art IV reoriented the objectives of the IMF towards prompting “a stable system of exchange rates.” For this purpose, the Fund was also granted a new mandate to exercise “firm surveillance” over exchange rate policies of its members, as well as broad powers to “oversee” the international monetary system. Most importantly, new Art. IV did not define what surveillance is and left it entirely to the Fund to adopt “specific principles” for the guidance of its members regarding its powers of monetary surveillance. A number of internal board decisions and guidance notes thereafter, have clarified the scope, nature as well as the legal mandate of the Fund with respect to monetary surveillance.

Monetary surveillance typically entails both bilateral consultations and multilateral reporting. Bilateral surveillance consists of country visits, which are then followed up with the publication of a Consultation Report. These reports contain analysis and recommendations on a range of structural problems associated with a member state’s financial and monetary infrastructure, including financial soundness, monetary stability and exchange rate misalignment. Multilateral surveillance, on the other hand, entails information gathering and dissemination, analysis of macroeconomic spillovers, monitoring of cross-country linkages, standard setting and knowledge production on key monetary policy frameworks.

The objective of monetary surveillance is twofold. On the one hand, bilateral surveillance provides an opportunity for “dialogue and persuasion” where international monetary institutions interact closely with domestic central banks and other monetary authorities of member states. On the other hand, multilateral surveillance is geared towards cross-country references, ranking, standardizing and creating coherent cognitive frameworks around contested monetary issues. The recommendations, which are part of the multilateral and bilateral surveillance, are not legally binding. They are offered as advice in the form of best practices. Yet, they carry tremendous weight and have visible impact as they engage processes of peer review, public scrutiny, and induce market pressure. In other words, monetary surveillance operates at the interface of informal and formal law making. Through surveillance, monetary institutions do not seek to change legal relations directly, but indirectly shape preferences and background assumptions of the actors involved in the process. Surveillance is a typical example of the exercise of cognitive and communicative power, which builds on knowledge, expertise and information instruments that structure cognitive conditions. The inherently evaluative character of surveillance also makes it a highly political instrument, through which certain forms of knowledge systems, standards and monetary practices are privileged over others.

As opposed to the top-down coercive mechanism of conditionality, surveillance aims to convince and nudge domestic monetary authorities towards particular policies. International monetary institutions rely on their discursive powers rather than their purse strings to achieve their goals. To quote the IMF itself, in an interconnected globalized economy, monetary surveillance is a “core responsibility of the IMF.” The latest IMF report is revelatory in this regard. In it, the Fund documents that conditional lending today comprises merely 15% of the share of total IMF activity. Surveillance, both bilateral and multilateral, on the other hand, comprises a total of 42% of the Fund’s regular work. Similarly, even regional monetary institutions such as the BRICS CRA, the CMIM as well as the EFSD have developed elaborate mechanisms of monetary surveillance, allocating a significant proportion of their technical staff and material resources for that purpose.

To sum up, even while conditional lending is an important function of international monetary institutions, much of international monetary governance today transpires through the instrument of monetary surveillance. In an age where information and knowledge is power, the instrument of monetary surveillance is precisely the means through which deep political and social contestations about money are mediated through the law. Consequently, our focus must shift towards analyzing how the expanding legal framework around monetary surveillance makes international monetary institutions emerge not only repositories of material influence, but as norm diffusers, policy advisors and consensus builders.

G. Contested Issues in International Monetary Law
As argued above, at the heart IML is the question of balance-of-payments. Balance-of-payments is in turn influenced by a number of different monetary related measures, including exchange rate manipulation, monetary spillovers, controls on international capital flows and the management of international liquidity. Even though each of these issues are governed by a broad set of parameters laid down within the rules of the IMF and other institutions, the legal framework is neither straightforward nor settled. These issues are also deeply political and have important effects not only on the global distribution of wealth and resources among states, but also for individuals and for domestic policy making.

I. Currency Manipulation and Exchange Rate Misalignment
The issue of currency manipulation, i.e., the practice of directly or indirectly tinkering with the value of a particular currency to gain a competitive trade advantage, has been a recurring concerning in IML. The central provision that deals with the question of currency manipulation is Art IV:1 (iii) of the IMF agreement, which reads that member states ought to “…avoid manipulating exchange rates or the international monetary system in order to prevent effective balance of payments adjustment or to gain an unfair competitive advantage over other members…”. The IMF has the ultimate authority to find a country in violation of the above provision. Despite the clear nature of the obligation, the process of determining whether a country is, in fact, manipulating its exchange rate has been fraught with economic, legal and political hurdles. In economic theory, currency manipulation remains a contested concept, with no strict rules capable of determining a particular practice or set of practices as currency manipulation. This allows a great deal of deference to be afforded to a country's interpretation. Moreover, Art IV:1 (iii) requires the indication of a subjective intent (“in order to”) for the purposes of determining whether a particular action, even if considered as manipulation, actually falls foul of the provision. Consequently, the IMF has never found any member in violation, even though accusations of currency manipulation are rife in international monetary relations. Many have thus questioned the effectiveness of IML, its lack of a clear set of rules and absence of a dispute settlement mechanism. Some have turned to trade rules in agitating matters relating to currency manipulation as akin to an import tariff and an export subsidy against the mandate of the WTO.

II.Cross-Border Monetary Spillovers
Monetary spillovers refer to the phenomenon whereby monetary policy actions by one state have negative effects and consequences for monetary policy decisions on others. While monetary spillovers is not a new problem, it came back into focus after the GFC when core economy central banks such as the U.S. Federal Reserve and the ECB experimented with a number of unconventional monetary policy measures (UMP). UMP generated large scale financial and monetary stability implications for the developing world such as exchange rate volatility, asset price mismatches and currency appreciations across the developing world. Monetary spillovers also negatively affect the pursuit of monetary autonomy in the periphery. Central banks in the latter are forced to respond to decisions taken elsewhere, steering them away from monetary policy which might be otherwise optimal for domestic circumstances. The regulatory framework for monetary spillovers remains dispersed and is hardly settled. The IMF’s multilateral surveillance infrastructure, the G20 MAP as well as the BIS’s standardization frameworks form the core set of rules regulating monetary spillovers. Yet, they all suffer from a fundamental asymmetry. They fall short of explicitly requiring ‘source’ countries, i.e. those largely responsible for monetary spillovers in the first place, to adjust their monetary policy decisions. Instead, the focus remains on structural adjustment in ‘receiving’ countries. As several commentators have highlighted, the international legal framework on monetary spillovers privileges the promotion of domestic stability, even if that might come at the cost of international stability.

II.Cross Border Capital Flows
The movement of international capital has been a defining feature of twenty-first century globalization, far outpacing international trade in recent decades. International capital, however, exhibits a dual quality. Even when it comes with several benefits, capital flows can also be accompanied by financial and monetary instability. Several periods of financial crisis, in the past, attests to the inherently volatile and disruptive nature of capital flows. Despite being allowed under the IMF Agreement, capital controls were shunned for the most part of 20th century, when a combination of neo-classical and monetarist economies ideas propagated freedom of capital as the cornerstone of growth and development. International institutions like the IMF and OECD as well as the regime for international trade and investment pushed for capital liberalization, often with devastating consequences for the Global South. The GFC witnessed a change in perspective. A number of states and their central banks resorted to capital controls to protect financial and monetary stability. Even the IMF was forced to advise several of its members to impose controls on both the inflow and outflow of capital. As Grabel notes, controls which were “denigrated as a tool for the weak and misguided…have now been normalized as a tool of prudential ﬁnancial management, even within the corridors of the IMF.” Today, IMF law as illustrated in its 2012 Institutional View on the Liberalization and Management of Capital recognizes capital controls as a legitimate monetary policy tool, which can be used under certain circumstances, even pre-emptively. Similarly, the OECD and a growing number of Free Trade Agreements as well as BITs allow for capital controls as part of BOP exceptions. Yet, given that the regulation of capital flows remains fragmented across a range of institutional regimes, including monetary, trade and investment, conflicting obligations and overlapping mandates remain a concern.

III. The Provision of International Liquidity and Monetary Reserves
States typically require access to international liquidity, i.e., the provision of monetary reserves to finance its balance-of-payments and intervene in foreign exchange market to stabilize its exchange rate. How states can access reserves and what indeed counts as reserves have been a source of much of contestation. The IMF sought to provide a solution to the problem of international liquidity by creating Special Drawing Rights (SDR) as a global reserve asset in 1969. SDRs were to be assigned automatically to countries in proportion to their respective quotas and did not come with any strings attached. In fact, the intention was to promote SDR as the “principal reserve asset in the international monetary system”. Yet, for the most part, the key role of the US dollar as the leading currency for international transactions and payments also made it the defacto reserve asset for the world. This meant that the Federal Reserve, i.e. the only central bank with unlimited access to dollar liquidity, effectively became the international lender of last resort, sometimes even outpacing the Fund. For the rest of the world, access to dollar liquidity depends on either the largesse of the Federal Reserve or tied to the coerciveness of IMF conditionality. This makes the international monetary system and especially the provision of international liquidity highly asymmetric in that deficit countries are perennially forced to accumulate dollar reserves despite the costs associated with it. International monetary law lacks a clear set of rules on the provision of international liquidity, consequently shifting the burden of adjustment to deficit countries alone.

H. Conclusion: Politics, Hierarchy and Subordination in International Monetary Law
The illustrated list of issues in IML reveals a number of elements about the international monetary system. First, that money is not a neutral instrument of economic policy, but a highly political one through which a range of contestations over key distribution and allocation of resources transpire. The rules pertaining to international monetary cooperation reflect the underlying distribution of international monetary power and how the burdens and benefits of monetary adjustment are ultimately shared. Much of the development of IML happened through a complex interaction of internal legal rules and informal instruments, rather than grand treaty amendments, reflecting the close interplay between law and politics, formality and informality.

Second, the international monetary system is an inherently hierarchical one. In this, some currencies enjoy what is called “exorbitant privilege” i.e., the ability to act as a medium of exchange and store of value both domestically and internationally. For instance, the US dollar, a domestic currency, is also the linchpin of the international monetary system, allowing the US economy to deflect and delay the cost of monetary adjustment onto others. It also places the Federal Reserve at the apex of the global currency hierarchy, as it is the only central bank capable of issuing an unlimited supply of dollars to the international monetary system.

In other words, as one moves from the financial core to the periphery, neither monetary sovereignty nor monetary autonomy is necessarily guaranteed. Peripheral central banks are continually tied to monetary policy decisions of core central banks. This is visible not only regarding large scale monetary spillovers from the Federal Reserve and other core central banks to central banks in the periphery, but also in the way that peripheral central banks are forced to accumulate international reserves primarily in US dollars (and to some extent in Euro) to ward off monetary and financial instability. The inability of peripheral currencies to act as either a medium of exchange or store of value internationally also forces the latter to borrow in currencies that are not their own, increasing the likelihood of balance-of-payments crisis. This is because monetary policy decisions in the financial core affect the value of foreign debt, most of which is denominated in core currencies, but held by peripheral economies. In recent years, both the IMF and the World Bank have sounded the alarm over a mounting debt burden for countries which have a high exposure to debt denominated in a foreign currency.

Many thus view international monetary and currency relations as a manifestation of imperial power in contemporary society. Much like how colonial currency systems were systematically subordinated to currency systems in the metropole, the present monetary system creates and sustains bonds of subordination and dependency between the core and the periphery. This is the case not only for direct forms of subordination but also indirect forms of control through the provision of international liquidity and reserve accumulation. In this, money operates as a ‘neo-colonial’ tool which binds the prospects for growth, economic development and social transformation of the periphery to the economic and political imperatives of the core. Control over money, then, is a crucial element of economic self-determination.

The lasting legacy of Bretton Woods is that while the regulation of money was entrusted to an international organization, namely the IMF, a national currency came to acquire a central place in the international monetary system. International monetary law and especially the framework of the IMF does not fundamentally challenge this framework. Scholarship on international monetary law, then, must be able to uncover the deep structural continuities between old imperial formations and present-day economic governance.

Summary

 * Summary I
 * Summary II

Further Readings

 * Reading I
 * Reading II