Hegemonic instability: complex interdependence and the dynamics of financial crisis in the contemporary international system

Abstract

International Relations scholars have long recognized the need to study the complex interdependencies of the international economy in order to understand the economic sources of national power and influence. Renewed interest in the patterns of international economic interdependencies and the structure of globalization has led scholars to a better, more empirically grounded understanding of the significance of complex interdependence for the evolution of international power. This paper examines the effect of one important and persistent characteristic of complex interdependence, American centrality within the international banking system, and argues that changes in the US financial cycle drive international financial volatility and crisis. These dynamics comprise the underbelly of American financial hegemony and pose a fundamental challenge to US leadership in the contemporary liberal international order. Financial stability is key to economic growth, which in turn perpetuates liberal political norms and institutions. Financial instability, on the other hand, breeds political discontent, which may take the form of populism or nationalism. The ability and willingness of the United States to reign in its own financial system may be key to ensuring that the liberal international system it established 75 years ago survives and thrives in the coming decades.