POLI 243 Lecture Notes - Campaign Finance In The United States
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4 Apr 2012
School
Department
Course
Professor
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 ! 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 ! citizens who have
this money can buy things internationally (own
property/investment)
• Disadvantages
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
push
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
regime)!
• 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