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This chapter provides a brief introduction to the nature of currency internationalization and its implications for state power. Currencies may play a variety of roles both within markets and between governments. The driving force behind currency internationalization is competition. Five types of power resource are particularly influential in determining the competitiveness of a currency: economic size, financial development, foreign-policy ties, military reach, and effective governance. Differing degrees of competitiveness create a hierarchy among moneys a Currency Pyramid that is narrow at the top, where one or a few moneys dominate, and increasingly broad below, reflecting descending levels of competitiveness. Hierarchy, in turn, suggests varying degrees of reciprocal influence. Currency capabilities are derived from broader patterns of monetary power among states, which are a reflection of each country’s ability to delay or deflect the costs of adjustment to external equilibrium. An international currency adds to a country’s power to delay by augmenting the nation’s overall liquidity position. Since international moneys typically play different combinations of roles, potential degrees of currency power may vary considerably as well.

At the stage of maturity in the life cycle of an international currency, the challenge is: What should the issuing government do with its currency power? The options are exploitation, evasion, or enjoyment. Should the issuer seek to capitalize on the advantages offered by the newfound power resource? Should it look for some way to escape potential risks of currency internationalization? Or should it, in a passive mode, simply accept the benefits of internationalization as they come? Once again, a brief review of recent history illustrates the importance of geopolitical ambition – its presence or absence – in determining which option will be chosen. Most countries that have seen their money rise to the upper ranks of the global monetary hierarchy, just below America’s top-ranked dollar, have settled for the enjoyment option, eschewing the attractions of currency power. These include today’s euro and yen, Britain’s pound, the Swiss franc, and the Canadian and Australian dollars. For the United States by contrast, deeply enmeshed in geopolitics, passive currency statecraft is not a natural option. The chapter explains and evaluates the many ways that the United States has exploited its currency power, both directly and indirectly.

This chapter provides a general introduction to the questions and themes addressed in this book. The central issue addressed in the book is currency statecraft: what a government chooses to do – or not do – when its currency gains international appeal. Currency internationalization adds to the power of the issuing country. Contrary to conventional wisdom, however, not every government automatically chooses to make active use of its augmented capabilities. While currency power may be exploited by some countries, it may be ignored or even resisted by others. This book asks two central questions. First, what determines the strategic choices that issuers make at each stage in the life cycle of an international currency? And second, what determines the effectiveness of each government’s policy choices? Analysis highlights in particular the critical role of geopolitical ambition in shaping a country’s currency statecraft – how driven the society may be to build or sustain a prominent place in the community of nations.