254 The Triad and the Unholy Trinity: Problems of International Monetary Cooperation
for the process, can a solution be found that will effectively prevent them from
retreating?
One obvious possibility is the extreme of a common currency, where individual
autonomy is—in principle—permanently surrendered by each participating country.
In practice, of course, not even full currency unions have proved indissoluble, as
we saw in the case of the East African shilling in the 1970s or as evidently we are
about to see in the case of the (former) Soviet Union today. But cases like these
usually stem from associations that were something less than voluntary to begin
with. When undertaken by consenting sovereign states, full monetary unification
generally tends to be irreversible—which is precisely the reason why it is seen so
seldomly in the real world. During the laissez-faire nineteenth century, when monetary
autonomy meant less to governments than it does now, two fairly prominent currency
unions were successfully established among formally independent nations—the Latin
Monetary Union, dating from 1865, and the Scandinavian Monetary Union created
in 1873—each built on a single, standardised monetary unit (respectively, the franc
and the krone). Both groupings, however, were effectively terminated with the outbreak
of World War I. In the twentieth century, the only comparable arrangement has
been the Belgium-Luxembourg Economic Union, established in 1921. (Other
contemporary currency unions, such as the CFA franc zone and the East Caribbean
dollar area, had their origins in colonial relationships.) The recent difficulties
experienced by the European Community (EC) in negotiating the details of a formal
Economic and Monetary Union (EMU) illustrate just how tough it is to persuade
governments even as closely allied as these to make the irrevocable commitment
required by a common currency.
Short of the extreme of a common currency, an effective solution would require
participating governments to voluntarily pre-commit to some form of external
authority over their individual policy behaviour. The authority might be supplied
by an international agency armed with collectively agreed decision-making powers—
corresponding to what I have elsewhere called the organising principle of supra-
nationality. It might also be supplied by one single dominant country with
acknowledged leadership responsibilities (the principle of hegemony). Or it might
be supplied by a self-disciplining regime of norms and rules accepted as binding
on all participants (the principle of automaticity). Unfortunately, neither experience
nor the underlying logic of political sovereignty offers a great deal of hope in the
practical potential of any of these alternatives. Supra-nationality and automaticity,
for example, have always tended to be heavily qualified in international monetary
relations. In the G-7 multilateral-surveillance process, the International Monetary
Fund (in the person of its managing director) has been given a role, but limited
only to the provision of essential data and objective analytical support, and public
articulation of any sort of binding rules (regarding, for example, exchange-rate
targets) has been strenuously resisted by most governments. Hegemony, in the
meantime, may be tolerated where it is unavoidable, as in the sterling area during
the 1930s or the Bretton Woods system immediately after World War II. But as
both these historical episodes illustrate, dominance also tends to breed considerable
resentment and a determined eagerness by most countries to assert individual
autonomy as soon as circumstances permit.