Podcast Summary: The Coming Global Monetary (Dis)Order

Podcast: LSE: Public lectures and events
Host: LSE Film and Audio Team
Speaker: Professor Benjamin Cohen, University of California, Santa Barbara
Date: April 29, 2010

Overview

This episode features a lecture by Professor Benjamin Cohen, a leading expert in international political economy, as part of the LSE’s Ralph Miliband series on the future of global capitalism. Cohen explores whether the aftermath of the global financial crisis (2007–2010) will bring a new era of global monetary "order" or "disorder." He systematically assesses the prospects for restoring stability to the international monetary system, analyzing key mechanisms like adjustment, liquidity, confidence, and leadership—while ultimately expressing skepticism about the likelihood for transformative reform.

Key Discussion Points & Insights

1. Why This Moment Matters

• Cohen notes he has always taught international money and finance in “interesting times,” but says the aftermath of the 2007–08 financial crisis is especially significant:
  “This has been the most serious economic challenge since the 1930s. It’s difficult to exaggerate how close we came to a really major collapse of the world economy.” (03:59)
• The central question for policymakers: Can “global monetary order be restored?”

2. Understanding the Global Monetary System

The Two Levels:

• Markets: The network of institutions enabling cross-currency money transfers—essentially, the foreign exchange and international finance markets.
• Official Level: The constitutional framework setting the “rules of the game”—without a true global government, relying instead on governance between sovereign states (the “Westphalian system”).
  “What we are talking about here is... governance without government.” (06:56)

Key Elements (The “Four Critical Elements”):

• Adjustment: Rules for dealing with balance-of-payments surpluses/deficits—typically via devaluation, deflation (austerity), or direct controls (the “three Ds”).
• Liquidity: Sufficient international financing to enable countries to manage deficits in the short term.
• Confidence: Trust in the monetary instruments in use.
• Leadership: Direction or coordination from one or a few powerful actors.

3. Historic Contrast: Bretton Woods vs. Today

• At Bretton Woods (1944), governments designed a system with clear rules and leadership (US dominance), establishing fixed exchange rates (the “par value system”), the IMF for liquidity, and widespread confidence in the US dollar.
• Over time, the system “privatized.” Market actors replaced governments in setting exchange rates and providing liquidity, leading to “greater potential for instability.”
• The collapse of fixed rates (Article 4, IMF) means governments now have “absolute flexibility”—but less systematic control.
  “The one thing that had previously been required... was now prohibited.” (23:18)
• Liquidity provision now often comes from markets, not the IMF, with conditionality disappearing—but this increases volatility and procyclicality.
• Confidence in the dollar has declined as US moved from “greatest creditor” to “greatest debtor” nation.
• Leadership moved from the G7 to the G20, but with little clarity on processes or effectiveness.

4. Contemporary Challenges

Adjustment – Surveillance Limitations

• Efforts to enforce “firm surveillance” over exchange-rate policies (e.g., via the IMF) have proven weak, especially with large players like China.
• Important challenges (notably Greece and China) are often not addressed:
  “The two most important problems in the monetary system today... weren’t even discussed by the group that is trying to establish a framework for strong, sustainable, and balanced growth.” (49:15)

Liquidity & Market Reforms

• Many proposals (financial transaction tax, tougher capital requirements, macroprudential regulation) have little traction.
• The new wave of sovereign debt crises (exemplified by Greece, Portugal, Spain) threaten global stability, and “responsible governments have been scurrying around... not in fact showing much ability to come to an effective collective decision.” (48:25)

Confidence – Dollar Hegemony Questioned

• Euro is hampered by poor governance structure, unlikely to surpass the dollar.
• Yen is seen as “yesterday’s currency”; the Chinese yuan as “tomorrow’s currency, but not today.”
• Proposals for a new global or SDR-based currency are unrealistic: “multiply the difficulties of euro governance by 192 countries.”
• Cohen foresees “a leaderless currency system” with competitive regional currencies but no single dominant global currency.
  “The dollar will still be primus inter pares but by no means as dominant as it has been in the past.” (46:21)

Leadership – No Consensus, No Power Concentration

• In Bretton Woods, both consensus on principles and power concentration existed; today, both are missing.
• Rise of countries with growing autonomy (e.g., China, BRICS), but not yet global “influence,” hinders collective action.
• Fundamental reforms are “unlikely”; the world will continue to “muddle through.”

Notable Quotes & Memorable Moments

• On the current moment:
  “It’s unrealistic to think that sovereign states would be prepared to completely pool their sovereignty in some world monetary authority. I would insist on that as an axiom...” (09:10)

• On post-crisis prospects:
  “We are heading toward a leaderless currency system.” (46:21)

• On the hope for a new Bretton Woods:
  “This is not going to be another Bretton Woods moment... There may be some tinkering around the edges... but basically, we will continue to muddle through.” (50:10)

• On optimism and pessimism:
  “Optimism is Dr. Pangloss in Voltaire’s Candide... and the pessimist is the person who nods sadly and mutters, ‘I’m afraid I agree with you.’” (51:40)

Q&A Highlights

(Timestamps refer to the beginning of the Q&A segment)

[52:05] Audience Q (China & Currency Risk): Can China be compensated for dollar-denominated asset losses if it allows the yuan to appreciate?

• Cohen: “It’s a zero-sum game... difficult to imagine a negotiation being successful... The US has little motivation to agree to compensation.”

[53:46] Audience Q (Stimulus & Public Debt): Is post-crisis debt “a painkiller” or a real solution?

• Cohen: “Governments had no choice... The only way to get the balance sheet of the private sector under any kind of control was to allow for an increase of public debt... But governments have to develop credible exit strategies.”

[56:34] Audience Q (G20 and Exchange Rates): Could G20 enforce an exchange rate “floating zone”?

• Cohen: “There will not be anything like an agreement on exchange rates... Cooperation occurs episodically, in moments of crisis, then breaks down when the crisis ebbs.”

[58:10] Audience Q (Credit Rating Agencies): Why do they have so much power?

• Cohen: “It’s very expensive to gather information to make your own judgment... We rely on the credit ratings agencies... Sometimes they really get it wrong... But it’s difficult to imagine an alternative.”

[74:34] Audience Q (Gold as Future Currency): Could gold return as a basis for the system?

• Cohen: “Simple answer, no. I’m firmly convinced that John Maynard Keynes had it right when he described it as a barbarous relic...”

[79:09] Audience Q (Lehman Brothers Counterfactual): If it had been rescued, would the crisis have been less severe?

• Cohen: “If it hadn’t been Lehman Brothers, it would have been something else... We had built up a structure which was unsustainable... The crisis would have manifested itself over a period, measured in weeks or months.”

[79:18] Moderator Q: Is trying to “maximize” rather than “satisfice” dangerous for the system?

• Cohen: “Never let the perfect be the enemy of the good... I am an incrementalist... The real issue is the willingness of governments to undertake modifications of policy in the common interest... That’s the problem we have not yet been able to resolve.”

Timestamps for Major Segments

• 00:00–02:30 — Introduction
• 02:30–12:00 — The coming (dis)order: context and definition of the global monetary system
• 12:00–24:00 — The Bretton Woods order vs. the current system; privatization and marketization
• 24:00–40:00 — Challenges across the four elements: adjustment, liquidity, confidence, leadership
• 40:00–51:40 — Cohen’s forecast: “muddling through” and the absence of transformative change
• 51:51–87:40 — Audience Q&A: China’s dollar dilemma, crisis responses, rating agencies, gold, counterfactuals, systemic reform philosophies
• 87:37–87:40 — Conclusion

Summary: Takeaways for Listeners

Professor Cohen paints a picture of a global monetary system in flux but unlikely to experience fundamental reform in the wake of the financial crisis. The epochal moment of 1944’s Bretton Woods is not likely to be repeated; instead, today's privatized, decentralized, and increasingly leaderless system will likely persist, featuring more regional competition and sporadic, crisis-driven cooperation. Cohen urges realism, incrementalism, and an acceptance that the best we can hope for is for nations to “muddle through”—with all the attendant uncertainty and instability that entails.