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Published online by Cambridge University Press: 20 November 2017
This article examines the ongoing conflict in the global monetary system as a struggle over norms of recognition between the US Federal Reserve and the emerging market economies. The analysis demonstrates that the Fed, though dominant actor in the global monetary system, adopts a US-centric perspective and relies upon inadequate economic constructs that misrecognise periphery members and justify a dismissal of criticisms of its monetary policy actions. The article shows how the adoption of recognition principles in reconstituting the monetary rules of the game would provide the Fed with an understanding of the political economic essentials of member countries, a greater awareness of potential harms of its monetary policy actions and the importance of cooperation in reducing conflict and mitigating episodes of monetary instability.
1 For example see T Lindemann, ‘Peace through Recognition: An Interactionist Interpretation of International Crises’ (2011) 5 Journal of Political Sociology 68; Lindemann, T, Causes of War: The Struggle for Recognition (ECPR Press, Colchester, 2010).Google Scholar
2 I do not explore the theoretical aspects of formal consequentialist reasoning in this article. See the discussions of formal rationality in Feldmann, J and Kelsay, J, ‘Inside the Iron Cage: Notes on Rationality and Global Capital Markets’ (1996) 79 Soundings 385Google Scholar; Feldmann, J and Kelsay, J, ‘Unlocking the Iron Cage: The Hidden Risks of Formal Rationality’ (1997) 80 Soundings 201Google Scholar. These papers draw from Kalberg, S, ‘Max Weber’s Types of Rationality: Cornerstones for the Analysis of Rationalization Processes in History’ (1980) 85 American Journal of Sociology 1145.Google Scholar
3 For a more detailed review of the substantive ethical issues at stake in Fed monetary policy decisions see Feldmann, J, ‘The Fed as a Moral Enterprise’ (2012) 95 Soundings 420Google Scholar; Feldmann, J, ‘The Federal Reserve, the Global Monetary Regime and Real World Economic Justice’ (2014) 97 Soundings 131.Google Scholar
4 Wiener, A, Lang, AF Jr., Tully, J, Maduro, MP and Kumm, M, ‘Global Constitutionalism: Human Rights, Democracy, and the Rule of Law’ (2012) 1 Global Constitutionalism 1, 7.Google Scholar
5 Tully, J, Dunoff, JL, Lang, AF Jr., Kumm, M and Wiener, A, ‘Introducing Global Integral Constitutionalism’ (2016) 5 Global Constitutionalism 1, 1.Google Scholar
6 (n 4) 7–8.
7 (n 5) 7.
8 (n 4) 7–8.
9 For relevant discussions of recognition theory and principles as applied to IR see Lindemann, T and Ringmar, E (eds), The International Politics of Recognition (Paradigm Publishers, Boulder, CO, 2012)Google Scholar; Tully, J, ‘Approaches to Recognition, Power and Dialogue’ (2004) 32 Political Theory 855Google Scholar; Tully, J, ‘Recognition and Dialogue: The Emergence of a New Field’ (2007) 7 Critical Review of International Political and Social Philosophy 84Google Scholar. For general background see Thompson, S, The Political Theory of Recognition: A Critical Introduction (Wiley, New York, NY, 2006).Google Scholar
10 Tully, ‘Approaches to Recognition, Power and Dialogue’ (n 9) 859. The analysis of the struggle over recognition in terms of dominant actor misrecognition – a central feature in the monetary policy conflict – relies on T Lindemann 2011 (n 1). The monetary policy conflict might be insightfully analysed in contestation frameworks: see A Wiener, ‘Theory of Contestation: A Concise Summary of Its Argument and Concepts’ (2017) 49 Polity 1.
11 Tully, ‘Approaches to Recognition, Power and Dialogue’ (n 9) 855.
12 Tully, ‘Recognition and Dialogue: The Emergence of a New Field’ (n 9) 86.
13 This is a T Lindemann description of the change in mindset.
14 Slaughter, AM, A New World Order (Princeton University Press, Princeton, NJ, 2004) 19.Google Scholar
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17 Wiener (n 15) 194.
18 Tully, ‘Recognition and Dialogue: The Emergence of a New Field’ (n 9) 86: Tully, ‘Approaches to Recognition, Power and Dialogue’ (n 9) 855.
19 Wiener (n 15) 201.
20 Caruana, J, ‘International Monetary Policy Interactions: Challenges and Prospects’ (Speech delivered at CEMLA-SEACEN Conference, Punta del Este, Uruguay, 16 November 2012), <http://www.bis.org/speeches/sp121116.pdf>>Google Scholar; R Rajan, ‘Statement by Dr. Raghuram Rajan, Governor, Reserve Bank of India, on behalf of Bangladesh, Bhutan, India, and Sri Lanka’ (International Monetary and Financial Committee, Washington, DC, 12 April 2014), <https://www.imf.org/External/spring/2014/imfc/statement/eng/ind.pdf>.
21 For example, Krichene, N, ‘Recent Inflationary Trends in World Commodities Markets’ (2008) (IMF Working Paper 130, International Monetary Fund, May 2008) 1, <https://www.imf.org/external/pubs/ft/wp/2008/wp08130.pdf>..>Google Scholar
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23 See generally the studies of Claudio Borio, Director of Research at the BIS. For a recent BIS study with many references see MS Mohanty, ‘The Transmission of Unconventional Monetary Policy to the Emerging Markets’ (BIS Papers No 78, Bank for International Settlements, August 2014) 1.
24 (n 22) 13–21.
25 ibid 14, 20.
26 This literature is surveyed in R Koepke, ‘What Drives Capital Flows to Emerging Markets? A Survey of the Empirical Literature’ (IIF Working Paper, Institute of International Finance, Washington, DC, April 2015); Bowman, D, Londono, J and Sapriza, H, ‘US Unconventional Monetary Policy and Transmission to Emerging Market Economies’ (2014) 55 Journal of International Money and Finance 57–9;Google Scholar J Gagnon, T Bayoumi, J Londono-Yarce, C Saborowski and H Sapriza, ‘Direct and Spillover Effects of Unconventional Monetary and Exchange Rate Policies’ (paper presented at the 16th Jacques Polak Annual Research Conference, International Monetary Fund, Washington, DC, 5–6 November, 2015). A recent note disputes these findings, though using a different methodology: J Clark, N Converse, B Coulibaly and S Kamin, ‘Emerging Market Capital Flows and US Monetary Policy’ (International Finance Discussion Paper Note, Board of Governors of the Federal Reserve System, October 2016).
27 J Sobrun and P Turner, ‘Bond Markets and Monetary Policy Dilemmas for the Emerging Markets’ (BIS Working Papers No 508, Bank for International Settlements, Monetary and Economic Department, August 2015), <http://www.bis.org/publ/work508.pdf>.
28 RN McCauley, P McGuire and V Sushko, ‘Global Dollar Credit: Links to US Monetary Policy and Leverage’ (BIS Working Papers No 483, Bank for International Settlements, Monetary and Economic Department, January 2015), <http://www.bis.org/publ/work483.pdf>.
29 A Amatov and J Dorfman, ‘Extraordinary Monetary Policy Effects on Commodity Prices’ (Proceedings of the NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management, St. Louis, Missouri, MO, 21–22 April 2015), <http://www.farmdoc.illinois.edu/nccc134/conf_2015/pdf/Amatov_Dorfman_NCCC_134_2015.pdf>; Anzuini, A, Lombardi, MJ and Pagano, P, ‘The Impact of Monetary Policy Shocks on Commodity Prices’ (2013) International Journal of Central Banking, <http://www.ijcb.org/journal/ijcb13q3a4.pdf>..>Google Scholar
30 (n 22) 21.
31 ibid 21.
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34 ibid (emphasis added).
35 G Mantega, ‘Statement by Guido Mantega, Minister of Finance of Brazil, on behalf of Brazil, Colombia, Dominican Republic, Ecuador, Guyana, Haiti, Panama, Suriname, and Trinidad and Tobago’ (Twenty-Fifth Meeting, International Monetary and Financial Committee, 21 April 2012).
36 G Mantega, ‘Statement by Guido Mantega, Minister of Finance of Brazil, on behalf of Brazil, Cape Verde, Dominican Republic, Ecuador, Guyana, Haiti, Nicaragua, Panama, Suriname, Timor-Leste, and Trinidad and Tobago’ (Twenty-Seventh Meeting, International Monetary and Financial Committee, 20 April 2013); G Mantega, ‘Statement by Guido Mantega, Minister of Finance of Brazil, on behalf of Brazil, Cabo Verde, Dominican Republic, Ecuador, Guyana, Haiti, Nicaragua, Panama, Suriname, Timor-Leste, and Trinidad and Tobago’ (Twenty-Ninth Meeting, International Monetary and Financial Committee, 12 April 2014).
37 Zhang, M, ‘Bernanke Defends Fed from Claims It Is Being Selfish and Hurting Emerging Economies’ IBTimes Online (12 October 2012), <http://www.ibtimes.com/bernanke-defends-fed-claims-it-being-selfish-hurting-emerging-economies-846263>..>Google Scholar
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43 US Treasury, ‘Major Foreign Holders of Treasury Securities’, <http://ticdata.treasury.gov/Publish/mfh.txt>; International Monetary Fund, ‘Currency Composition of Official Foreign Exchange Reserves 2012–2015’, <http://data.imf.org/?sk=E6A5F467-C14B-4AA8-9F6D-5A09EC4E62A4>.
44 The issue of exorbitant privilege and corresponding responsibilities is discussed in Eichengreen, B, Exorbitant Privilege: The Rise and Fall of the Dollar (Oxford University Press, New York, NY, 2012)Google Scholar; Prasad, ES, The Dollar Trap: How the U. S. Dollar Tightened Its Grip on Global Finance (Princeton University Press, Princeton, NJ, 2014)Google Scholar; also see a classical treatment: Aliber, RZ, ‘The Costs and Benefits of the U.S. Role as a Reserve Currency Country’ (1964) 78(3) The Quarterly Journal of Economics 442.Google Scholar
45 The responsibilities of the exorbitant privilege are discussed in Gourinchas, PO and Rey, H, ‘From World Banker to World Venture Capitalist: U.S. External Adjustment and the Exorbitant Privilege’ in Clarida, RH (ed), G7 Current Account Imbalances: Sustainability and Adjustment (University of Chicago Press, Chicago, IL, 2007)Google Scholar 11; revised with updated data, PO Gourinchas, H Rey and N Govillot, ‘Exorbitant Privilege and Exorbitant Duty’ (UC Berkeley Working Paper, February 2014), <http://socrates.berkeley.edu/∼pog/academic/duty4c.pdf>.
46 See Wiener (n 10). In contestation, the scholars’ engagement represents a practice of normative intervention.
47 Krichene (n 21).
48 Ibid 1, 17, 24.
49 Fratzscher, M, ‘What Explains Global Exchange Rate Movements during the Financial Crisis?’ (2009) 28(8) Journal of International Money and Finance 1390Google Scholar; Hausman, J and Wongswan, J, ‘Global Asset Prices and FOMC Announcements’ (2011) 30(3) Journal of International Money and Finance 547.Google Scholar
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53 Ibid (emphasis added).
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60 Ibid 6.
61 ENS Economic Bureau, ‘Bernanke, Rajan Face-Off over US QE Spillover’ Indian Express (12 April 2014), <http://indianexpress.com/article/business/business-others/bernanke-rajan-face-off-over-us-qe-spillover/>..>Google Scholar
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64 As early as 2007, H Rey and co-author P Gourinchas argued that the ‘exorbitant’ benefits received by the US as reserve currency were an implicit insurance premium that created a duty upon the Fed to act as a lender of last resort in a crisis (n 45).
65 Rey, H, ‘Dilemma Not Trilemma: The Global Financial Cycle and Monetary Policy Independence’ (Paper presented at Kansas City Federal Reserve Conference, Jackson Hole, WY, 26 August 2013), 310 <http://www.kc.frb.org/publicat/sympos/2013/2013Rey.pdf>..>Google Scholar
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67 Koepke (n 26) 2. A recent paper supports Rey’s Mundellian thesis: G Plantin and HS Shin, ‘Exchange Rates and Monetary Spillovers’ (BIS Working Papers No 537, Bank for International Settlements, January 2016).
68 See M Fratzscher, M Lo Duca and R Straub, ‘On the International Spillovers of US Quantitative Easing’ (Working Paper Series No 1557, European Central Bank, 2013) 3, <https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1557.pdf>; Ahmed, S and Zlate, A, ‘Capital Flows to Emerging Market Economies: A Brave New World’ (2013) 48 Journal of International Money and Finance 221Google Scholar; Rogers, JH, Chiara, S and Wright, J, ‘Evaluating Asset-Market Effects of Unconventional Monetary Policy: A Cross-Country Comparison’ (FRB International Finance Discussion Papers No 1101, Board of Governors of the Federal Reserve System, Washington, DC, March 2014), <http://www.federalreserve.gov/pubs/ifdp/2014/1101/ifdp1101.pdf>>Google Scholar; Bowman, D, Londono, J and Sapriza, H, ‘U.S. Unconventional Monetary Policy and Transmission to Emerging Market Economies’ (FRB International Finance Discussion Papers 1109, Board of Governors of the Federal Reserve System, Washington, DC, June 2014), <https://www.federalreserve.gov/pubs/ifdp/2014/1109/ifdp1109.pdf>>Google Scholar; Bruno, V and Shin, HS, ‘Capital Flows and the Risk-taking Channel of Monetary Policy’ (2015) 71 Journal of Monetary Finance 119, 120;Google Scholar Davis, O, ‘How Do U.S. Interest Rate Hikes Affect Emerging Markets?’ IBTimes (17 September 2015), <http://www.ibtimes.com/how-do-us-interest-rate-hikes-affect-emerging-markets-2102118>..>Google Scholar
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71 Rey, ‘International Channels of Transmission of Monetary Policy and the Mundellian Trilemma’ (n 69) 6.
72 Ibid 2.
73 Ibid 1.
74 Corsetti, G, ‘New Open Economy Macroeconomics’ in Durlauf, SN and Blume, LE (eds), The New Palgrave Dictionary of Economics (2nd edn, Palgrave Macmillan, 2008); The New Palgrave Dictionary of Economics Online, Palgrave Macmillan, <http://www.dictionaryofeconomics.com/article?id=pde2008_N000060>..>Google Scholar
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76 The content of the Bernanke Mundell-Fleming lecture actually appeared in several forms – an oral lecture (a), a paper (b) and a summarising blog (c): B Bernanke, ‘Federal Reserve Policy in an International Context’ (Mundell-Fleming Lecture, 16th Jacques Polak Annual Research Conference, International Monetary Fund, Washington, DC, 5 November 2015), transcript at <https://www.brookings.edu/wp-content/uploads/2015/11/110515BROOKINGSBERNANKE-1.pdf>. A paper based on the speech, but with changes, was later published as B Bernanke, ‘Federal Reserve Policy in an International Context’ (Mundell-Fleming Lecture, 16th Jacques Polak Annual Research Conference, International Monetary Fund, Washington, DC, 5 November 5 2015), available at <https://www.imf.org/external/np/res/seminars/2015/arc/pdf/Bernanke.pdf>. And Bernanke summarised the speech in a blog, ‘What Did You Do in the Currency War, Daddy?’ (5 January 2016) available at <http://www.brookings.edu/blogs/ben-bernanke/posts/2016/01/05-currency-war-daddy>.
77 Bernanke, ‘Federal Reserve Policy in an International Context’ (n 76a) 22.
78 Bernanke, ‘What Did You Do in the Currency War, Daddy?’ (n 76).
79 For a discussion of intent and causal responsibility see Feldmann, J, ‘Causation and Consequences in Monetary Policy: Are Federal Reserve Policies Based on an Inadequate Theory of Causal Responsibility?’ (2016) 99(3) Soundings 321.Google Scholar
80 Bernanke, ‘Federal Reserve Policy in an International Context’ (n 76a) 52–64; Bernanke ‘Federal Reserve Policy in an International Context’ (n 76b) 23–37.
81 Bernanke, ‘Federal Reserve Policy in an International Context’ (n 76a) 37–41.
82 Ibid (n 76a) 14.
83 Schiff, JL, Burdens of Political Responsibility: Narrative and the Cultivation of Responsiveness (Cambridge University Press, Cambridge, 2014) 127.Google Scholar
84 Ibid.
85 Ibid.
86 Ibid 111.
87 Ibid 112.
88 Lindemann, T, ‘Peace through Recognition: An Interactionist Interpretation of International Crises’ (2011) 5 International Political Sociology 68; Lindemann, Causes of War; The Struggle for Recognition (n 1).Google Scholar
89 Tully, ‘Recognition and Dialogue: The Emergence of a New Field’ (n 9) 86.
90 Ibid 84.
91 Thompson, S and Yar, M (eds), Politics of Misrecognition (Routledge, New York, NY, 2016) 170, 172.Google Scholar
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93 Rey, ‘International Channels of Transmission of Monetary Policy and the Mundellian Trilemma’ (n 69) 6.
94 Ibid 2.
95 Tully, ‘Approaches to Recognition, Power and Dialogue’ (n 9).
96 Clark et al. (n 26).
97 Tully, ‘Recognition and Dialogue: The Emergence of a New Field’ (n 9) 87.
98 Ibid 88.
99 See Allan, P and Keller, A, ‘Is a Just Peace Possible without Thin and Thick Recognition?’ in Lindemann, T and Ringmar, E (eds), The International Politics of Recognition (Paradigm Publishers, Boulder, CO, 2007) 73Google Scholar; Tully, ‘Recognition and Dialogue: The Emergence of a New Field’ (n 9) 90.
100 Tully, ‘Recognition and Dialogue: The Emergence of a New Field’ (n 9) 91.
101 Ibid 93–4.
102 Allan and Keller (n 99) 71–2.
103 Tully, ‘Approaches to Recognition, Power and Dialogue’ (n 9) 85.
104 See the discussion of the conditional nature of rules of thumb in Feldmann, J, ‘A Social Contract and Rules of Practice for the Fed’ (2016) 99(1) Soundings 1.Google Scholar
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110 Ibid 77.
111 Ibid 72.
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115 Rajan (n 16) 4.
116 Bernanke (n 58).
117 Allan and Keller (n 99) 78.
118 Lindemann, ‘Peace through Recognition: An Interactionist Interpretation of International Crises’ (n 1) 68.
119 Rajan (n 16) 4.
120 Tully, ‘Recognition and Dialogue: The Emergence of a New Field’ (n 9) 95.
121 Under recognition theory, the attempt by Rajan to get the dominant actor to engage in dialogue and concession interest could be criticised as simply an example of a ‘masked interest’ inasmuch as Rajan is presenting the case on behalf of the weaker actor, the EME, so he has more to gain by dialogue and change of rules. See T Lindemann and A Giacomelli, ‘Recognition Theory and Material ‘‘Interests’’ in Humanitarian (Non) Intervention’, Mimeo (presented at a conference in July 2014, unpublished).
122 Rajan (n 16) 1.
123 J Caruana, ‘Policymaking in an Interconnected World’ (Speech delivered at The Federal Reserve Bank of Kansas City’s 36th Economic Policy Symposium on ‘The Changing Policy Landscape’, Jackson Hole, 31 August 2012) 5–6.
124 See the Final Report of the Financial Crisis Inquiry Commission, issued pursuant to Public Law 111-21 (January 2011) at <http://fcic-static.law.stanford.edu/cdn_media/fcic-reports/fcic_final_report_full.pdf>.
125 Bernanke, B, ‘The Subprime Mortgage Market’ (Speech delivered at the Federal Reserve Bank of Chicago’s 43rd Annual Conference on Bank Structure and Competition, Chicago, 17 May 2007), <http://www.federalreserve.gov/newsevents/speech/bernanke20070517a.htm>>Google Scholar.
126 (n 22) 35.
127 Ibid 35.
128 Slaughter (n 14) 19.
129 (n 22).
130 Allan and Keller (n 99) 74, 77.
