Rethinking Monetary Sovereignty: The Global Credit Money System and the State

Abstract

This article proposes a new conception of monetary sovereignty that acknowledge the reality of today’s global credit money system. The concept is today predominantly used to denote states that issue and regulate their own currency. This article rejects that Westphalian understanding of monetary sovereignty. Instead, we propose a conception of effective monetary sovereignty that focuses on what states are actually able to do in the era of financial globalization. The conception fits the hybridity of the modern credit money system by acknowledging the crucial role not only of central bank money but also of money issued by regulated banks and unregulated shadow banks. These institutions often operate ‘offshore’, outside of a state’s legal jurisdiction, which makes monetary governance more difficult. Monetary sovereignty consists in the ability of states to effectively govern these different segments of the monetary system and thereby achieve their economic policy objectives.

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