Between collapse and decline: the dissolution of international monetary systems in comparative historical perspective

This thesis is concerned with varying rates (i.e. speeds) of system dissolution in the international monetary domain. International monetary systems, such as the gold-dollar system and inter-war order, often suddenly and unexpectedly collapse. Yet other monetary orders, such as the Sterling Area and the long-forgotten Latin Monetary Union, for no less obscure reasons, have declined gradually. The puzzle is why. I begin by taking seriously the initial conditions that give rise to international monetary systems, for those historical conditions shape the modalities of leadership and political conflicts that drive systems towards particular kinds of ends. In this context, I draw on the classical distinction between spontaneous and negotiated orders. Whereas spontaneous orders emerge around natural processes of trade and financial integration, without any conscious act of creation, negotiated orders emerge through deliberate and directed action. The study breaks with traditional understandings, however, in arguing that the most important legacy of these historical processes is not that spontaneous orders are decentralised while negotiated ones are hierarchical. In fact, all international monetary systems exhibit a strongly hierarchical character. Instead, I highlight, on the one hand, the centrality of collective institutionalised bargaining between integrated national monetary agencies (i.e., treasuries and central bank officials) in negotiated systems and, on the other, the absence of collective institutional bargaining in more atomised spontaneous systems. This structural distinction is the key legacy of the different historical processes of negotiated and spontaneous system formation. Contrary to conventional wisdom and intuition, I argue that spontaneous systems â plagued by non-association and lacking ready mechanisms of directed adjustment â establish the conditions for slow decline, while negotiated systems â geared to withstand economic and social change through institutionalised collective bargaining and concerted adjustment â establish the conditions for rapid collapse. My framework treats the ultimate unit of analysis as the policy choices made by leaders confronting problems. Specifically, the analysis logically deduces two distinct modalities of leadership that emerge as structural variables interact with political conflicts over preferred policy solutions. I label these modes of action appropriative and exclusory leadership. Appropriative leadership involves coopting administrative resources by negotiating with members of monetary institutions to meet problems. Exclusory leadership is geared towards retaining the non-trivial advantages that flow from not having to bargain over the terms of continuation. Under both modalities, leaders exploit their strategic position, distorting information and manipulating costs and benefits to promote their particular interests and goals. Both modalities involve tensions between leadership and membership interests and challenges to systems optimisation. But appropriative and exclusory leadership have different effects; they produce different sorts of political cleavage and maladaptation. Appropriative leadership holds the system against a declining functional fit with its environment, as members chafe under extractive demands. The leaderâs power to procure assistance will, eventually, be limited. At this point, the negotiated system will shatter, like a piece of glass placed under growing strain. Exclusory leadership, by design and consequence, is less likely to trigger membership resistance. This prolongs the system. However, leaders cannot repeatedly shun collective recalibrations, nor can they endlessly offer selective and differentiated terms of continuation to the members, without paying a price. The practices that sustain the system gradually hollow out, relational ties decay, and interests drift apart until the system fades away. This novel analytical framework is illustrated through comparative historical analyses of five systems, ranging from the decline of the Latin Monetary Union in the nineteenth century to the faltering progress towards the eurozone in the twenty-first. The studies utilise original archival materials drawn from five countries and more than ten institutions. The empirical findings, guided by the framework, challenge accepted historical understandings and interpretive frames and are thus novel contributions in their own right. The discussion also brings prescient inferences into contemporary debates about the eurozone and US dollar regimes. The argument suggests that policy insiders should rethink their actions. The lesson from history is that opportunistic leadership has repeatedly frustrated more efficient alternatives to the recurring nightmares of disorderly collapse and prolonged decline.