Nation-States and Money

Emily Gilbert, Eric Helleiner, Emily Gilbert, Eric Helleiner

• Publisher: Routledge
• Year: 1999
• ISBN:
  9781134658176
• Edition: 1
• Topic: Economics
• Subtopic: Economic Theory
• Index: Economics

National currencies appear to be threatened from all sides. European Union member countries are due to abandon their national currencies in favour of a supranational currency by the year 2000. Elsewhere, the use of foreign currencies within national economic spaces is on the increase, as shown by the growth of eurocurrency activity, and currency su

1 Introduction – Nation-States and Money

Historical Contexts, Interdisciplinary Perspectives

Emily Gilbert and Eric Helleiner

Introduction

Historically, most nation-states have sought to maintain a distinct currency that is both homogenous and exclusive within their territorial boundaries. Indeed, it is widely believed that these national currencies (or ‘territorial currencies’, as some authors prefer) are a clear indicator of a nation-state’s sovereignty. And yet, in the late twentieth century, it appears that national currencies are facing an increasing number of challenges. In Europe, for example, most member countries of the European Union have committed themselves to abandoning their national currencies in favour of a supranational currency. Elsewhere, the use of foreign currencies within national economic spaces is on the increase as evidenced by the growth of eurocurrency activity as well as extensive ‘currency substitution’ in many parts of the world. Privately issued sub-national ‘local currencies’ have also proliferated within many countries during the last decade and some predict the emergence of private electronic monies in the future.

What is the significance of these challenges to national currencies? Why are they taking place in the current era? And what do they tell us about the relationship between nation-states and money? Most existing literature addressing contemporary monetary transformations has been written by economists who are inclined to view money primarily as an economic phenomenon. This approach, however, has its limitations. For example, if money served only an economic purpose, it is unlikely that it would have been traditionally organised largely along national lines. After all, almost no country in the world represents the kind of ‘optimum currency area’ that economists suggest is best served by a single currency. Similarly, understanding money solely as an economic phenomenon makes it difficult to explain fully phenomena such as the nationalist sentiment recently generated in countries like England and Germany when faced with the prospect of losing their national currencies. Examining money from a more interdisciplinary perspective may help to elucidate the significance of national currencies for nation-states as well as the challenges to these monetary structures in the contemporary age. The objective of this volume is to provide such a perspective, demonstrating that national currencies, and money more generally, need to be examined not just as an economic phenomenon but also in terms of their geographical, political, social and cultural dynamics.

Included in this interdisciplinary perspective is also a focus on national currencies as an historical phenomenon. Existing literature on current monetary developments usually lacks much of an historical perspective; indeed, it is sometimes assumed that territorially homogenous and exclusive national currencies are a ‘natural’ way of organising money. As we will illustrate in more detail below and throughout the volume, a longer historical perspective quickly dispels this assumption. National currencies are a relatively recent historical creation that accompanied the emergence and the spread of nation-states during the nineteenth and twentieth centuries. Indeed, their creation resulted only from what Viviana Zelizer (1994: 205) describes as the ‘painstaking and deliberate activities of public authorities’. An historical examination of national currencies not only draws out the ways that they have been deliberately constructed but also how they have never been as totalising or homogenous as is sometimes assumed. Studies of the historical relationship between nation-states and national currencies, and of alternatives to national currencies that predated and were coterminous to them can help us to interpret contemporary monetary transformations, a point that Eric Helleiner returns to in Chapter 12.

This volume draws together scholars from a wide range of disciplinary backgrounds who bring to the study of nation-states and money their historical, geographical, political, social and cultural perspectives. The volume is divided into two parts. The chapters in the first part each address issues relating to money in the period leading up to and during the formation of national currencies. Ranging widely in their historical and geographical context, these chapters grapple with the role of the nation-state in the development of national currencies and problematise this relationship by looking at alternative forms and uses of currencies during this period. While many of the chapters in Part II are also sensitive to an historical perspective, they turn towards the contemporary challenges faced by national currencies. Here the chapters address a wide range of issues, from the supranational currency project in Europe to the growing use of foreign currencies in national economic spaces.

The variety of perspectives adopted and the complexity of the issues addressed herein make it impossible to be exhaustive in the treatment of the relationship between money and nation-states in the past, present and future. In this introductory chapter and the concluding chapter, therefore, we seek to contextualise the many issues that are raised in the contributions to the volume. This introductory chapter begins by outlining some key historical issues concerning the emergence of national currencies and the relationship between this process and the construction of nation-states. It then considers in some detail the variety of approaches to money that are adopted in this volume and draws out the implications of these to our understanding of national currencies. The concluding chapter turns to address some of the issues arising from the contemporary challenges to national currencies. Its goal is to draw on the themes of the volume and to highlight the causes and implications of these challenges for the nation-state. While the contents of the various contributions are touched upon in both the introductory and concluding chapters, they are not summarised; instead, brief introductions to the two parts of the volume provide summaries of the chapters and indicate how they are linked with the themes of that part.

Construction of National Currencies: Forging Connections between Money, Nations and States

To date, remarkably little academic literature has been devoted to the relationship between the historical origins of national currencies and the construction of nation-states. A look through the considerable and rapidly growing literature on the history of nation-state formation, for example, shows little mention of the importance of, or role played by, currency structures in this process. To be sure, some prominent scholars in this area – including Anthony Giddens (1985), Gianfranco Poggi (1978:93) and Eric Hobsbawm (1992:28) – have mentioned in passing that the emergence of national currencies took place alongside that of the nation-state, but they have not explored this association to any extent. If we turn to the scholarship on the history of money, we also find little assistance. The economic historians who dominate this area of study have tended to steer their attention away from the relationship of monetary change to the broader political, socio-cultural, and spatial processes associated with the construction of nation-states in the nineteenth and twentieth centuries.

This gap in the historical literature is unfortunate not only from the standpoint of historical interest but also because it inhibits our understanding of the changing nature of money in the contemporary era. The chapters in the first part of this volume – as well as many of the chapters in the second – begin to fill this gap in the historical literature by examining different aspects of the historical relationship between states, nations and currencies in specific contexts. In this section, we draw on their arguments and other sources to develop very briefly some broader themes.

How National Currencies were Established

Before turning to the role of the nation-state in the construction of national currencies, it is important to recognise the extent to which currency structures before the nineteenth century differed from the ‘national’ model with which we are so familiar today (Helleiner 1997,1999). One difference was that the poor in many countries predominantly used low-denomination tokens or copper and bronze coins, often privately issued, that were not easily convertible into the official monies used by the more wealthy. The result was a tiered monetary order, rather than a coherent national one, in which a fluctuating and unclear ‘exchange rate’ existed between the respective forms of money used by these two classes. Equally important, official state currencies usually faced considerable competition from other monies within their own borders. One source of competition came from local currencies issued by private or sub-state authorities, as in the case of the Japanese feudal lords discussed in Chapter 4 by Makoto Maruyama. Foreign coins offered a second kind of competition, as they were often a prominent means of exchange in domestic circulation.

Yet even the state-issued official forms of money that circulated among the more wealthy were not homogenous. Coins and notes were frequently very uneven in quality, not only because of the technological inferiority of their production by today’s standards, but also because old and worn forms of money were not withdrawn regularly and counterfeiting was widespread. Furthermore, the relationship between the value of the two dominant types of coins in circulation in most parts of the world – silver and gold – was also subject to change because of their intrinsic metallic value; fluctuations of rates frequently caused the sudden disappearance of one or the other coin from domestic circulation. The increased use of paper monies further contributed to this complexity for many different private and public institutions issued their own notes in numerous denominations each with their own design; these paper currencies also had varying degrees of acceptance across the economic space of each country. Finally, to cope with this lack of uniformity in the domestic monetary system, abstract units of account were often used – in medieval and early modern Europe, for example – to value the many forms of money in circulation. Although they helped to reduce the confusion at the level of accounting, these ‘ghost monies’ also contributed to the monetary complexity by creating yet another monetary instrument with which the public had to contend.

The creation of territorially homogenous and exclusive national currencies required numerous changes to this chaotic monetary situation. Part of the process involved the production, for the first time, of large quantities of high-quality ‘petty coins’ for the poor, coins that were fixed in a clear relationship to the other official forms of money. Governments also began to replace ‘full weight’ silver and gold coins with well-made token coins, the value of which was set by the state rather than derived from an intrinsic metallic value. This helped to eliminate the use of and need for internal exchange rates, ‘ghost monies’ and foreign coins. Equally important were the initiatives to create a single homogenous banknote, to remove foreign coins from domestic circulation, and to integrate new forms of bank deposit money into the new national currency framework. At the same time, more concerted and effective efforts were launched to stamp out private unofficial money, counterfeiting and old, worn forms of money.

The forging of national currency structures out of a heterogeneous and complex monetary system was a central project undertaken by states across the world in the nineteenth and twentieth centuries (as discussed in Chapters 2, 3, 4, 5, and 8). England was the early pioneer in this process, building an homogenous and exclusive national currency primarily during the first half of the nineteenth century. Some other Western European countries, the United States, and Japan followed its lead, completing the consolidation of their monetary systems along the new ‘national’ lines in the decades leading up to the First World War. A third wave of countries – including the British Dominions, some countries in Europe and Asia, and much of Latin America – began the construction of national currencies during the nineteenth century, but did not create fully homogenous and exclusive currencies until the interwar period. And it was not until they gained independence after the Second World War that most formerly colonised countries in Africa and the rest of Asia established national currencies.¹

Emergence of National Currencies and Nation-States

If national currencies are a relatively recent historical creation, why did they suddenly emerge as a model for monetary organisation in the nineteenth and twentieth centuries? And in what ways was this development linked to the emergence of the nation-state in this same period? Although the experiences of individual countries differed considerably, Nigel Dodd (1994, and Chapter 10) suggests that the creation of national currencies was part of a number of broader processes relating to the formation of nation-states. One such process was the centralisation of the state’s administrative machine which gave the state considerable capability to influence and directly regulate the forms of money used by the inhabitants of its territory. The development of nation-wide policing structures, for example, enabled the enforcement of legal tender laws in a comprehensive fashion for the first time. Also significant was the deepening of the state’s role in the daily economic life of the people that it governed which was made possible by the spread of national networks of post offices, state-regulated banks and railway stations, as well as national military conscription and the emergence of consolidated taxation system (e.g. Weber 1976). These changes enabled the state to influence the money used within its territory by proclaiming which forms of money would be accepted at public offices and which would not (e.g. Knapp [1905] 1924). They also increased people’s ‘trust’ in the new national currency as the state’s commitment to buy and sell token forms of money at fixed rates was made more real and credible. Also enhancing ‘trust’ in the new state- controlled national money was the introduction of more representative forms of government, as well as, in some instances, emerging nationalist sentiments, as Chapter 3 highlights.

The emergence of industrial capitalism also played a significant role in the formation of national currencies. In part, this was because the application of new industrial technologies to the manufacture of money made possible the mass production of standardised coins and notes (e.g. Hewitt and Keyworth 1987; Doty 1986; Mackenzie 1953). This change dramatically improved the uniformity of the money in circulation and, especially important, it enabled public authorities to produce large quantities of high-quality, low-denomination coins and notes for the poor for the first time. Counterfeiting also became more difficult in the face of technological advances which reduced the number of fraudulent monies in circulation. This in turn facilitated the use of homogenous ‘token’ monies on a mass scale which had been hitherto very difficult as counterfeiters were invariably tempted to produce large quantities of fraudulent money, given the enormous profits to be made (Redish 1990).

Industrial capitalism also created larger economic spaces at a national scale that were no longer well served by the older monetary systems. Commercial actors operating across the new national economic space, as well as the public authorities seeking to promote such activity, became increasingly frustrated at the transaction costs created by the heterogeneous money supply within the territory of the state. As the poor became further incorporated within a national monetary economy, they too began to protest the inadequate quantity and quality of ‘small denomination’ money. In an age when the masses were recognised as ‘national citizens’, their protests had considerable influence, and they often acted as an important impetus for monetary reforms ranging from the monopolisation of the paper money supply to the creation of a modern token coinage (Helleiner 1997).

The boundaries of economic trade in the industrial age did not, of course, stop at national borders, and neither did the push for national currencies. Indeed, as the world economy became increasingly integrated during the nineteenth and early twentieth centuries, foreign commercial interests and governments from ‘core’ regions had an increased interest in seeing more ‘orderly’ and ‘modern’ domestic monetary systems resembling those at home introduced in countries with which they had trading and investment relationships. It is then of little surprise that key monetary reforms, such as the introduction of modern token coinage systems based on the gold standard or the monopoly of note issues, were introduced with their prodding – and with the assistance of externally oriented domestic groups – in regions such as Latin America and Eastern Europe and under their more direct influence in the colonial regions of Africa and Asia (e.g. Drake 1989; Rosenberg 1985; Ofonagoro 1979). Indeed, at various moments in the late nineteenth and early twentieth centuries, more ambitious proposals were also advanced for a c...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright
• Dedication
• Contents
• List of figures and tables
• List of contributors
• Series editors’ preface
• Preface and acknowledgements
• 1. Introduction – nation-states and money: historical contexts, interdisciplinary perspectives
• Part I: Nations, states and currencies in historical perspective
• Part II: Challenges to national currencies in the contemporary age
• Index