Exchange rate politics: contemporary lessons from American history

This essay makes two analytical points about the domestic and international politics of exchange rate issues. First, it argues that changes in the political prominence of currency values over time are best explained by changes in the level of international economic integration. The more cross-border trade and investment takes place, the more national macroeconomic policies implicate the exchange rate, and the more exchange rates affect important socioeconomic actors. Second, the article provides a starting point to understand the pattern of domestic political conflict over currency values by analyzing the distributional impact of different currency regimes and levels. Internationally oriented economic groups prefer fixed exchange rates, domestically based groups prefer floating rates. Similarly, tradables producers prefer a relatively depreciated currency, producers of non-tradable goods and services a relatively appreciated one. The arguments are brought to bear on American political conflict over the gold standard in the late 19th and early 20th century. They are then applied to analysis of the ongoing process of European monetary integration.