rate adjustments. The euro therefore illustrates how complex is the political economy of
international money. Political goals dictate economic structures, which can have unexpected
political and economic consequences. The relatively simple world of Cold War relations has
been replaced by a more complex set of international political and economic relationships.
The third example concerns the IPE of international financial crises. The breakdown of the
Bretton Woods system was part of a process that, by the 1990s, had created a global financial
system. Technological change, financial deregulation, the end Cold War divisions, and the
emergence of new economic centers all contributed to or accelerated the transformation of
finance from an international economic structure, subject to regulation by national governments,
to a global structure beyond the regulatory authority of any nation-state.
The problem with global financial markets is that they are not matched by any corresponding
global structure of state authority. That is, there is no political authority that corresponds to the
market. In theory the International Monetary Fund could serve this role, but in practice this
institution's power is intentionally restricted to limit its ability to undermine state autonomy.
One result of this asymmetry between political and economic structures has been the sequence of
international financial crises that includes the Mexican peso crisis of 1994-5, the East Asian
financial crisis of 1997, and the Russia crisis of 1999 among others. Many scholars suggest that a
new international financial architecture is needed to deal the imbalance between markets and
their underlying governance structures. The argument is that the range of financial markets has
expanded beyond the reach of the regulatory structures that support them. Global markets require
global systems of governance to match.
One reason why it is so difficult to agree to a new monetary system is that political and economy
systems are complex so that economic changes can have unexpected political consequences (see
euro example above). Another reason is that international agreements require that states
sometimes sacrifice their domestic needs to honor their international responsibilities. It is
difficult to design a system that creates an environment where states consistently honor
international agreements (see the Bretton Woods example above). Finally, the strengthening of
international or global authority threatens domestic autonomy -- the ability of the state to take
action in the national interest. The increasing frequency of financial crises, however, suggests
that states can either cede some authority through international agreements or have that authority
taken away by chaotic global market forces.
International finance is viewed by some as less political and more purely economic than
international trade, but these three examples give evidence to the contrary. Political scholars may
hesitate to engage in this analysis because of the necessity to master difficult theories and arcane
terminology, but there is no riper area for IPE analysis. As financial globalization has
progressed, the IPE of International Finance has risen in importance as an IPE problématique.
Hegemony.
The theory of hegemonic stability was arguably IPE's most important contribution to Cold War
international relations theory. As developed by Charles P. Kindleberger in the early postwar era,
this theory focuses on the motives and behavior of a hegemonic state. The hegemon is a rich and