POLI 243 Lecture Notes - Campaign Finance In The United States

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4 Apr 2012
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The Politics of International Monetary Relations:
Key Currencies, the Exchange Rate and Domestic
Policies 4/3/12 11:00 PM
Identifications: 5 points of significance ! 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
o competitive edge in financial services
o bargaining leverage over other states
o ability to run trade deficit because of the demand for the
o impetus for outward foreign investment ! citizens who have
this money can buy things internationally (own
o Currency “overhang” ! 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 ! would create a big inflationary
o Constraint on domestic options
Competing Liberal Theories of Monetary Policy
Economic models identify array of domestic interests (Defining the
dominant cleavage…) ! domestic politics to control policy
(democracy? Parliamentary or presidential? PR or SMD?) ! state
pursues preferences ! international politics as states act (interact
with economic partners’ preferences to shape international
Analytical liberals want to look at domestic level first and then look
at the broader implications of the policy
Domestic Interests Concerning Monetary Policy
Competing notions about the dominant interest:
o Hard money or soft money: creditors vs. debtors
" Creditors like the interest rates to be high, debtors like
it to be low
" Inflation is good for debtors bad for creditors
o Effect on trade competitiveness: “tradable” vs. “non-tradable”
" Currency rises in values ! exports price is increases,
imports price decreases
" Currency loses in value --> your goods look cheaper,
easier to export and less easy to import
" What kind of goods are effective in trade?
o Import- consuming or not: middle vs. lower class
o Ability to pass along costs: commodity producers vs.
producers of complex goods
" complex good producers are not as sensitive in change
in price ! automobiles
" commodity: wheat, you can't really tell where it comes
from --> very much focused on price
o Dominant interests are not exclusive
Theories from other levels
System level: international regimes
Bureaucratic Politics: Ministry of Finance vs. the central bank
Individual level: beliefs and experiences of top decision- makers
4/3/12 11:00 PM