Sunday, July 26, 2020

"The City of London vs. Bretton Woods"

Via the author's website:
The City of London vs. Bretton Woods
Tim Russo, Cleveland State University,in partial completion of the Master of Arts in Global Interaction
PSC 502 Term Paper, April, 27, 2015
Based on an analysis of Krasner’s four factors of sovereignty, the 1,000 year history of the Corporation of the City of London, and the inaugural election of the Greater London Authority in 2000, this paper will argue that the Corporation is a sovereign state which in 1955 breached the Bretton Woods framework by creating the Eurodollar market, embedding a systemic risk into the international monetary system through the sovereignty of the City’s offshore.
Imagine you left a dollar bill on the bar in a crowded club. It will not stay there long. Niall Ferguson, in his 2009 book The Ascent of Money,described this ability of money and the financial industry to move and even “live”in Darwinian biological terms, a tendency to spontaneously evolve intoa bewildering array of instruments to reproduce itself, ascribing to money characteristics like “genes,” “spontaneous mutation,” and natural “selection”.1

The Bretton Woods System, the international monetary policy framework agreed to in 1944 in response to the calamity of the Great Depression and World War II,was designed explicitly to prevent this dynamic from reaching the point of a collapsed star eating itself into a black hole, as the entire planet nearly did from 1929 to 1939 when international capital flows became weaponized monetary missiles of nation states. Bumpers were put in place by international agreement under Bretton Woods,led by the United States and the United Kingdom,specifically to allow this force of nature to do the immense good for humanity such power is capable of creating, while keeping the breathing organism from becoming a threat to itself and the world, ever again. Anne-Marie Burley describes the Bretton Woods System governing post war international monetary policy as an ideological compromise between American New Deal dynamics and free market, “light touch”, laissez faire neoliberal capitalism.2

Money and nation state priorities of full employment and social welfare would co-exist based on rules, norms, and regimes designed to maximize their benefits and minimize the risk that either would repeat its worst known potential. Applying Stephen Krasner’s concept of sovereignty within international relations to the City of London Corporation, and examining the Corporation’s 1,000 year history of guarding its Krasernian sovereignty, this paper will argue that the Corporation is today, as it always has been, a sovereign state, and in 1955, breached the rules and norms of Bretton Woods, when a bank in the City of London was permitted to accept and create accounts for US dollars in order to profit from arbitrage by offering higher interest rates on those dollars than those allowed by US law.

Ferguson’s Darwinian organism, capital,had leapt international boundaries into Ronen Palan’s “spider’s web” of offshore money, centered in the City3, instantly thriving in a secret, perfectly viral new market, creating over the next 60 years a systemic financial risk the size and scope of which is now inconceivably vast. Unseen, untaxed, unregulated, and uncommented upon in the inaugural election for the Greater London Authority in 2000, the offshore today may equal even the size of the entire world economy; estimates range from Palan’s conservative $16 trillion, to the Tax Justice Network’s estimate4 of $32 trillion residing in the City of London Corporation offshore. Evolving within the seamless financial remnants of the British Empire, this systemic risk to the international monetary system manifests repeatedly, with increasing intensity, precisely what Bretton Woods sought to prevent.

Further,the Bank of England’s acquiescence to the City’s creation of the Eurodollar market in 1955 is based not just in simple greed, but in ideological neoliberalism explicitly advocated by the Corporation as a sovereign state.

“Missed time,” a Great Refusal, and a parade
More art than science, sovereignty in international relations is a notoriously malleable concept. One seminal work, Krasner’s 1999 book, Sovereignty; Organized Hypocrisy, famously declares that sovereignty is “not a game of chess” 5, and instead lays out four measures of a state’s sovereignty that can overlap, bleed into each other, appear or disappear, but which together serve to illuminate sovereignty. Krasner’s four factors manifest throughout the City of London’s history; international legal sovereignty (most commonly known as mutual recognition);domestic sovereignty, referring to public authority and effective control within the state; Westphalian sovereignty, the exclusion of external actors; and most crucially for Bretton Woods, interdependence sovereignty; the ability to control movements across its border.6
Throughout its ancient history, the Corporation of the City of London may not have been playing chess, but has expertly navigated the choppy, murky waters of sovereignty, asserting, avoiding, or compromising its sovereignty depending on the circumstances, exactly as Krasner describes that sovereign nation states do as a matter of course. If sovereignty is indeed an art rather than a science, the Corporation is its Picasso....
....MUCH MORE (32 page PDF)