The Internationalization of Capital: Banks, Eurocurrency and the Instability of the World Monetary System

The paper traces some key developments in the internationaliza tion of capital and its impacts on the growth of the Eurocurrency system and the instability of the current international monetary system. In the last two decades, there has been a qualitative growth in international commercial banking which is symbiotically related to the growth of the stateless Eurocurrency system and to transnational corporations. The paper looks at the significance of these develop ments on the growth of bank held debt instruments of certain Third World coun tries, and in terms of the overall instability of the world monetary system. As pects of the relation of the Eurocurrency system to the generation and transmis sion of worldwide inflation are also examined. Specifically it is suggested that the explosion of world liquidity since the mid to late 1960s is rooted both in develop ments in private-sector capital, and in policies pursued by various nation-states towards the Eurocurrency system. It is also argued that while the dollar has falt ered, it nevertheless remains the dominant international reserve and transaction currency enabling the U.S. to maintain elements of its former hegemony and privilege in an otherwise highly unstable world system. The Eurocurrency system is defined and is seen as being the first truely international "money" or near mon ey, functioning in part as a fractional reserve banking system, yet without a cen tral bank regulator or lender of last resort. The instability of the international monetary system is thereby increased.