The Power of Currency

Abstract

This chapter explores the coercive power of currencies. The authors add to the existing literature on two strands. First, within the scope of the chapter, money encompasses all aspects of currency and financial relations – the processes and institutions of financial intermediation (mobilization of savings and allocation of credit) as well as the creation and management of money itself. The authors discuss as to what extent money can be deployed to prevent wars and conflicts, or, in other words, can money serve as a weapon of coercion? The chapter analyzes four scenarios of potential (fictional) financial wars between states. The authors find that, indeed, money yields coercive power. Based on proxies for the size of the economies of a deterring state and its adversary, the chapter shows how the potential impact of financial coercion may be estimated.