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The Politics of International Monetary Relations

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McGill University
Political Science
POLI 243
Mark Brawley

The Politics of International Monetary Relations: Key Currencies, the Exchange Rate and Domestic Policies 4/3/12 11:00 PM Midterm • Identifications: 5 points of significance à linking it to theories, why did it come up in class; worth 5 percent of total course mark • Essay: how well you know the theories and how well you think abstractly when applying theories; knowing about how the theories work and how to apply them Key Currencies • The way states make payments internationally • Advantages o competitive edge in financial services o bargaining leverage over other states o ability to run trade deficit because of the demand for the currency o impetus for outward foreign investment à citizens who have this money can buy things internationally (own property/investment) • Disadvantages o Currency “overhang” à have to convince foreigners that your currency has value and will last § When you want your currency to be a key currency it needs to have a lot of liquidity, but overtime it becomes to liquid and there is more paper in circulation than gold to back it up o Trade deficit can get too big à would create a big inflationary push o Constraint on domestic options Competing Liberal Theories of Monetary Policy • Economic models identify array of domestic interests (Defining the dominant cleavage…) à domestic politics to control policy (democracy? Parliamentary or pre
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