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McGill University
Political Science
POLI 243
Mark Brawley

Poli 243 Lecture Notes February 18 2013 The Politics of International Monetary relations Key Currencies, The Exchange rate, and domestic Politics Key Currencies Advantages: (others using your money internationally) - Competitive edge in financial services - They’ll have currencies everybody wants - Bargaining leverage over the other states o Political power o If foreigners need international money, by only going to your citizens to attain it, governments can exercise sovereignty and control who leaves its borders, who can handle the transactions, etc. o Ability to run trade deficit  Easy way to solve your balance of payments  E.g.) United States hasn’t been selling as many goods as they have been purchasing, and therefore has been compensating it through payment with their US currency because it is valued o Impetus for outward foreign investment Disadvantages - Currency overhang - Trade Deficit can get too big o If there’s no longer backing to the $US dollar, why do people still accept it and have confidence in it?  Because people can go spend it - Constraint on domestic options Competing liberal Theories of Monetary Policy Economic models identify array of domestic interests (Defining the dominant cleavage) Domestic
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