- Bucking the Buck: US Financial Sanctions and the International Backlash Against the Dollar. Oxford University Press (2023). [buy on Amazon]
The US dollar is the world's indispensable currency. The dollar's preeminent status gives the United States enormous coercive powers which it flexes in the form of financial sanctions to punish its adversaries. Over the last twenty years, Washington has relied on financial sanctions with greater and greater frequency. Bucking the Buck argues that the more the United States wields the dollar as a weapon of foreign policy, the more its adversaries will move their international economic activities into other currencies to avoid Washington's coercive reach. Through a combination of case studies and statistical analysis, the book establishes a relationship between US financial sanctions and the rise of "anti-dollar" policies, which are designed to reduce an economy's reliance on the US currency. Though some anti-dollar policies fail to achieve this goal, McDowell's analysis indicates that in many cases they are successful. Patterns of "de-dollarization" following sanctions are clear. In some cases, the anticipation of future sanctions may provoke similar policy measures. Though McDowell does not conclude that sanctions threaten the dollar's status as the world's key currency, the potential consequences of sanctions overuse remain important. Most notably, the use of sanctions may, over time, weaken their effectiveness as US adversaries develop systems and methods to minimize costs associated with such measures. If the United States wishes to preserve the potency of financial sanctions and protect the dollar's dominant position in the world economy, Bucking the Buck argues that Washington's approach to sanctions use should become more discerning.
- Brother, Can You Spare a Billion? The United States, the IMF, and the International Lender of Last Resort. Oxford University Press (2017). [buy on Amazon]
When financial crises occur, it has long been accepted that national economies need a lender of last resort to stabilize markets. In today’s global financial system, crises are rarely confined to one country. Indeed, they often go global. Yet, there is no formal international lender of last resort (ILLR) to perform this function for the world economy. Conventional wisdom says that the International Monetary Fund (IMF) has emerged in recent decades as the de facto ILLR. Yet, that premise is incomplete. This book explores how the United States has for decades regularly complemented the Fund’s ILLR role by selectively providing billions of dollars in emergency loans to foreign economies in crisis. Why would U.S. policymakers ever put national financial resources at risk to “bailout” foreign governments and citizens to whom they are not beholden when the IMF was created for this purpose? I argue the United States has been compelled to provide such rescues unilaterally when it believes a multilateral response via the IMF is either too slow or too small to protect vital U.S. economic and financial interests. Through a combination of historical case studies and statistical analysis, I uncover the defensive motives behind U.S. decisions to provide global liquidity from the 1960s through the 2008 global financial crisis. The book paints a more complete picture of how international financial crises have been managed and highlights the unique role that the United States has played in stabilizing the world economy in troubled times.
Several prominent international organizations (IOs) maintain decision-making structures that under-represent developing countries. This paper argues that individuals in developing countries are more supportive of engaging with IOs that give greater voice to fellow developing countries. We posit that the balance of decision-making power influences support for IOs by improving perceptions of both input legitimacy and output legitimacy. Empirically, we focus on the International Monetary Fund (IMF) and draw on original survey experiments in four developing countries: Argentina, China, South Africa, and Turkey. Results reveal that increased representation of developing countries increases public support for IMF participation. We also find consistent evidence that this effect works through an input legitimacy mechanism, specifically by improving perceptions of procedural fairness. These findings suggest that public support for IOs is affected by the balance of decision-making power within these organizations.
- Closing Time: Reputational Constraints on Capital Account Policy in Emerging Markets. (with Steven Liao) The Review of International Organizations (2022)
When do international reputational concerns constrain governments’ economic policy choices? We assess this question by analyzing decisions to tighten restrictions on capital outflows among a group of emerging markets. While policymakers should be more likely to tighten restrictions to protect their economies as capital flow volatility (CFV) increases, financial markets also view outflow controls with derision as they violate norms of capital freedom and property rights protection. We argue that the effect of CFV on outflow controls should be contingent on the use of capital controls in peer markets. When market peers are open, governments should anticipate that the use of outflow controls will come at high cost to their market reputations as norm violators stand out from a crowd of liberal substitutes. Conversely, when peer markets are closed and noncompliant with market norms, the use of outflow controls should be far less costly to an economy’s reputation. Focusing on 25 emerging markets from 1995 to 2015, we show that CFV is associated with outflow controls, but only when market peers are already closed. Our results suggest that reputational concerns and attendant fears of market punishment constrain economic policy choices.
- Inside Looking Out: How International Policy Trends Shape the Politics of Capital Controls in China. (with Dimitar Gueorguiev and David A. Steinberg) The Pacific Review (2021)
This paper examines the political-economy of capital controls in China. We argue that the global policy context influences domestic political debates over capital controls, which, in turn, can shape public attitudes toward the subject. Policy entrepreneurs on each side of the capital controls debate can point to capital account policies in other countries as evidence for the desirability of their position. This issue framing strategy, in turn, influences domestic preferences on capital controls. We present qualitative evidence showing that the international policy context features heavily in domestic political debates about capital controls in China. Next, using original survey data, we show that information about other countries’ policy choices influences mass public attitudes about capital controls in China. The evidence indicates that growing global use of capital controls can strengthen public support for this policy. More broadly, these findings suggest that a complete understanding of policy diffusion requires greater attention to the role played by domestic policy entrepreneurs.
- Financial Sanctions and Political Risk in the International Currency System. Review of International Political Economy (2021)
Scholarship on international currencies has traditionally emphasised how an issuing state’s foreign policy can enhance the attractiveness of its currency for cross-border use. Yet, foreign policy actions need not only boost a currency’s international appeal—they may also undermine it. This study introduces a general theory of how US foreign policy can influence governments’ policy orientations toward the dollar in positive or negative ways. Policies like financial sanctions generate ‘political risk’ that weaken the dollar’s attractiveness for international use. The study tests the claim that the United States’ use of financial sanctions incentivises targeted governments to implement de-dollarization policies. I employ a most-likely case study design, presenting evidence from three countries targeted by US sanctions: Russia, Venezuela, and Turkey. In each instance, the evidence shows that financial sanctions created political risk concerns by generating expectations of future direct costs of dollar use. These expectations set off policy efforts by targeted governments to reduce their economies’ exposure to the currency. This study raises important questions about the long-term efficacy of an approach to foreign policy that relies on financial sanctions as a primary means of leverage over foreign adversaries as overuse may undermine the effectiveness of the tool itself.
- Payments Power: The Overlooked Role of the Dollar as Top International Payments Currency. International Studies Perspectives (2020)
This paper is a contribution to a symposium entitled "Global Monetary Order and the Liberal Order Debate." My contribution considers the role of the US dollar as the top international payments currency. It explains how dominance in this arena is an important power resource for the United States, enabling the US to more effectively practice economic statecraft through the use of financial sanctions. I also consider how—perhaps paradoxically—use of this power may chip away at the dollar's supremacy in payments over time.
- The Impact of Economic Coercion on Public Opinion: The Case of US-China Currency Relations.
(with Dimitar Gueorguiev and David A. Steinberg) Journal of Conflict Resolution (2020)
When one country’s economic policies have negative repercussions on their trading partners, foreign states will often pressure the home country to change course. Whether external pressure succeeds in changing the target state’s policies often depends on how domestic audiences react to outside pressure. This paper examines how external pressure influences public support for policy change. We consider three mechanisms through which external pressure might alter public opinion: by changing individuals’ interests, by activating their national identities, and by providing them with new information about a policy’s distributive effects. To test these rival explanations, we focus on the case of China-US currency relations. Using data from a survey experiment of Chinese internet users, we find strong support for the informational updating theory. Compared to individuals that received no information about the US position, those that were informed that the US had encouraged China to appreciate its exchange rate and those that were told that the US had threatened to punish China if it did not appreciate were more likely to believe that appreciation would be good for the US. Moreover, among those with a negative view of America, the “U.S. threat” and “U.S. endorsement” treatments reduced support for appreciation. The evidence therefore suggests that external pressure can reduce support for policy change because it leads individuals to believe that a policy serves the interests of rival states at the expense of their own country.
- The (Ineffective) Financial Statecraft of China's Bilateral Swap Agreements. Development and Change (2019)
Since 2008, the People’s Bank of China (PBOC) has signed bilateral swap agreements (BSAs) with 35 foreign central banks. Collectively, these deals make nearly $500 billion in Chinese renminbi (RMB) available to Beijing’s foreign partners. What has led China to be so aggressive in its efforts to sign so many swap agreements? What are the political economic implications of the swap program for the US-centric global economic order? China’s BSAs can be understood as a form of financial statecraft: The use of national financial and monetary capabilities to achieve foreign policy ends. China has deployed BSAs for both defensive and offensive reasons. Defensively, Beijing has sought to use BSAs to promote trade settlement in RMB thereby reducing its vulnerability to the dollar’s structural dominance in trade. Yet, as I explain, they have been ineffective in this regard. Offensively, Beijing has used BSAs as a short-term liquidity backstop outside of the Bretton Woods institutions for partner countries in need. Here, there is greater potential for BSAs to impact the status quo economic order by enhancing Chinese economic influence. However, their potential is dependent on Beijing’s willingness to act as a unilateral crisis lender and its ability to further internationalize the RMB.
- Systemic Strengths, Domestic Deficiencies: The Renminbi's Future as a Reserve Currency. (with David Steinberg) Journal of Contemporary China (2017)
Will China’s currency, the renminbi (RMB), become as a major international reserve currency that rivals the US dollar in the next decade? This paper argues that this is unlikely for domestic political and economic reasons. China has some important systemic advantages that other recent challengers to the dollar have lacked, such as a large economy, major role in the international trading system, and substantial military capabilities. However, China’s domestic political system poses an important barrier to the internationalization of its currency. Chinese political institutions and financial policies reduce the attractiveness of the RMB as a reserve currency. Strong opposition to financial reform from Chinese interest groups has blocked financial reforms that would enhance the RMB’s attractiveness, and is likely to prevent substantial liberalizing reform in the future. Moreover, changes in China’s political economy during the Xi Jinping era (2012-present) have exacerbated these domestic deficiencies. Due to these various domestic political obstacles, the RMB is unlikely to emerge as a top reserve currency in the next ten years.
- Emergent International Liquidity Agreements: Central Bank Cooperation after the Global Financial Crisis. Journal of International Relations and Development (2017)
Central bank currency swap agreements have proliferated rapidly among emerging market economies (EMEs) since 2008. More than 80 such agreements have been signed in recent years. The accumulation of these agreements has resulted in the emergence of a new $1 trillion liquidity system by 2015. What explains the rapid proliferation of these agreements? What are the political and economic implications of the liquidity network for the international monetary and financial systems? I specify two key consequences of the global financial crisis and its aftermath that have led EME central banks to seek out swap agreements: volatile international capital flows and a recognition of the risks of dollar dependence in trade. I conclude that these liquidity agreements are unlikely to affect much change in the international monetary system. However, the system is transforming the international financial system through the creation of large liquidity lines for systemically important EMEs.
- Need for Speed: The Lending Responsiveness of the IMF. Review of International Organizations (2017) [replication data]
How responsive a lender is the International Monetary Fund (IMF)? In this paper, I introduce new data on IMF loan approval periods: The days that transpire between when a borrower submits a Letter of Intent to the Executive Board requesting a loan and when the Board approves that request. The data reveal considerable variation across requests. Why are some loan requests approved swiftly while others wait much longer for approval? I argue that the financial interests of the G-5 economies drive variation in responsiveness contingent on when a request was made. I expect that during much of the 1980s, as G-5 commercial bank exposure increases, borrowers will face longer waits for approval. In such cases, the G-5 should have been more likely to press for the use of the "concerted lending" strategy. This protected G-5 financial systems by catalyzing private financing on behalf of those countries, but it also delayed loan approval. Into the 1990s, global capital flows grew more complex and catalyzing private capital flows required a swift response. Thus, during these years I expect increased G-5 bank exposure to be associated with shorter waits for approval. In such cases, the G-5 should have been more likely to press for accelerated approval. A quick response would have the best chance of attracting back private capital and reduce the threat posed by the crisis. Statistical analyses of 275 loan requests from 1984-2012 support these expectations.
- No Reservations: International Order and Demand for the Renminbi as a Reserve Currency. (with Steven Liao) International Studies Quarterly (2016) [replication data]
This study identifies 37 central banks that added China’s Renminbi (RMB) to their reserve portfolio since 2010. Why do some states diversify into new reserve currencies at an early stage while most continue to take a wait-and-see approach? We argue that state preferences regarding international order influence decisions to invest in RMB. While some states support the liberal, U.S.-led status quo, others prefer an emerging Chinese alternative order. We contend that as state preferences for international order move away from the U.S.model (and toward China), the likelihood of diversifying reserves into RMB should increase. Thus, the decision to invest in RMB is not simply an economic choice. It is also a political act that signals and symbolizes a state’s preferences for a diminution of American global influence and support for a revised order. Employing new United Nations General Assembly (UNGA) ideal points data, we find that states with larger (smaller) ideal point distance with the U.S. (China) are more likely to adopt RMB as a reserve currency. Furthermore, such political considerations rather than economic concerns about transaction needs, optimal portfolio considerations, and instrumental calculations best explain emergent demand for the RMB as a reserve currency.
- Redback Rising: China’s Bilateral Swap Agreements and Renminbi Internationalization. (with Steven Liao) International Studies Quarterly (2015) [replication data]
For several years now China has implemented policies to promote the international use of its national currency, the Renminbi (RMB). As part of these efforts, the People’s Bank of China (PBC) has negotiated 24 bilateral currency swap agreements (BSAs) with foreign central banks that make it easier for firms in both China and its partner countries to settle cross-border trade and direct investment in RMB. We seek to explain why China and these countries are cooperating via BSAs. We theorize that trade and direct investment interdependence are linked to dyadic BSA cooperation via two mechanisms: financing insulation from international liquidity shocks and reduced transaction costs of cross-border exchange for local firms. Additionally, we expect the presence of preferential trade agreements (PTAs) and bilateral investment treaties (BITs) will increase the probability of dyadic BSA cooperation. BSAs are natural extensions of these existing agreements representing an additional layer of state-level formal cooperation further reducing barriers to cross-border trade and direct investment. Our empirical analysis finds that both de facto trade interdependence and de jure economic integration via PTAs and BITs increase the probability of BSA cooperation between China and partners. These findings are robust to alternative measures, model specifications, and methods
- The U.S. as Sovereign International Last-Resort Lender: The Fed’s Currency Swap Program during the Great Panic of 2007-2009. New Political Economy (2012)
Beginning in late-2007 and culminating in autumn 2008, the US Federal Reserve took extraordinary action to address global dollar scarcity through the provision of dollar swap lines with a total of 14 foreign central banks. At their peak, these emergency credit lines provided nearly $600 billion in financing to economies starved of dollars. This case represents an archetypal example of ‘sovereign international last-resort lending’. he article explores this case in order to engage the following two questions. First, what criteria qualify a state to play the role of international lender of last resort (ILOLR)? Second, under what conditions will a state with the capacity to act choose to do so? The article argues that the primary factor from which states derive the capacity to act as ILOLR is the international status of their national currency. Additionally, it contends that states with the capacity to act as ILOLR do so for defensive reasons. Examining the Fed’s swap programme, three spillover effects are identified that threatened the US economy and motivated the US central bank to engage in defensive international last-resort lending during the crisis: financial system exposure, interest rate concerns, and a dramatic appreciation in the dollar’s exchange rate.
- Race, Representation, and the Legitimacy of International Organizations (with David A. Steinberg)
The international organizations (IOs) that underpin the liberal international order are facing challenges to their legitimacy from multiple fronts. This paper argues that racial inclusiveness is one important, but previously overlooked, factor that shapes the legitimacy of IOs. We focus on a visible aspect of international institutions’ racial inclusiveness: the representation of Black people in IO leadership positions. Drawing on scholarship from multiple political science subfields and interdisciplinary scholarship on African diaspora, we hypothesize that Black leadership improves IO legitimacy among fellow Blacks—regardless of their nationality—but has a weaker effect on IO legitimacy among white individuals. To test our claims, we fielded survey experiments in South Africa and the United States. We find that Black IO leadership significantly enhances perceptions of institutional legitimacy among Black citizens. This effect stems from the leader’s race, not their region-of-origin—a conclusion we can reach because of our unique experimental design. Conversely, Black IO leadership does not have a strong impact on legitimacy perceptions among whites. Three supplemental experiments reinforce our main conclusions. This study shows that improving the representation of minorities at top levels in IOs can be a simple pathway for international institutions to enhance their public legitimacy.
Rising powers typically seek to play a larger role in international economic affairs. This paper examines the domestic political consequences of rising states’ expansive foreign economic strategies. We argue that a successful global economic expansion can pay political dividends for national leaders, in the form of increased mass public support and national pride. However, when those efforts are perceived as failures, national public opinion is likely to turn against the regime. To test this argument, we fielded three original survey experiments in China, each focusing on one component of China’s expansive foreign economic strategy: the internationalization of the renminbi; the Belt and Road Initiative; and the Asian Infrastructure and Investment Bank. Subjects either received no information about the international economic policy, or facts emphasizing either the expansion or stagnation of China’s role in the global economy. We find that information about China’s global economic expansion influences individuals’ levels of government satisfaction, national pride, optimism about China’s economic future, and beliefs about whether China is respected in the world. This evidence underscores the domestic political dividends that China’s leadership stands to gain from expanding the country’s global economic presence, but also highlights the risks attached to such a strategy.
- The Popular Legitimacy of the Federal Reserve after its Racial Awakening. (with David A. Steinberg)
The Federal Reserve has embarked on an awakening on matters of race over the last decade. The central bank has increasingly emphasized the distinct economic challenges facing racial minorities, and its leadership has become more racially diverse. The central bank’s growing attentiveness to issues of race have the potential to impact the organization’s public legitimacy. This paper applies theories of descriptive and substantive representation to understand how these shifts are likely to impact the popular legitimacy of the Federal Reserve. We hypothesize that greater Black descriptive and substantive representation improves Black Americans’ confidence in the Federal Reserve. We also anticipate that political ideology will moderate white Americans’ responses to the Federal Reserve’s racial awakening, with white conservatives responding less favorably to these changes than more left-leaning whites. Analysis of data from two original survey experiments with separate samples of 3000 Americans, split evenly between Black and white respondents, supports our expectations. Information about substantive and descriptive representation at the Fed has a strong impact on Black Americans’ perceptions of the institution. We also find that these changes at the Fed boost white liberals’ views of the Fed but have little impact on white conservatives’ attitudes about the central bank.
- Lending Tree: The Motives Behind and Implications of Chinese Bank Branch Growth in Foreign Markets, in Understanding China Amid Change and Competition. Wilson Center (2023).
- New Era of Financial Sanctions: Adapting to De-Dollarization, in Transatlantic Economic Statecraft: Different Approaches, Shared Risk. Atlantic Council (2023).
- Golden Parachute: Financial Sanctions and Russia’s Gold Reserves, in Digitalisation and Geopolitics: Catalytic Forces in the (Future) International Monetary System. Instituto Affari Internazionali (2023).