The Political Economy of Hub Currency Defense: Sterling and the Dollar

This essay implicitly views the crisis of the dollar as an integral part of the secular decline of U.S. empire. It argues that as a response to the 1978 international money crisis, the United States entered a new phase in which the state began to actively in tervene to defend the dollar as hub currency. This paper explores the contradictions of dollar depreciation and appreciation both domestically and internationally. It shows how the stance of defending the dollar in times of crisis periodically places the inter national banking community in a position to design emergency measures to mediate the crisis. In terms of fiscal policy the emergency measures can quickly dismantle state activities that are viewed as hindrances to capital in general. In this way, small gains made by workers, environmental groups, and the poor can be disposed of swiftly. In terms of monetary policy, the emergen cy measures can [bring off] a degree of monetary stringency that would normally be politically impossible to administer. Never theless the state has increasing difficulties carrying out the measures as people hit by the program begin to organize and resist. If the state succumbs to these pressures, another run on the dollar could develop. If the run is allowed to build momentum to the point where an international financial crisis is threatened, the international banking community can reassert its position with another emergency plan to defend the dollar. Since the U.S. is only beginning this phase of the dollar's decline, the paper looks for insights from two longer periods when the British state at tempted to defend the pound sterling against its decline. Long- run implications of sterling defense are examined, and lessons for struggle are drawn from the two periods.