Monetary Power Reconsidered: The Struggle between the Bundesbank and the Fed over Monetary Leadership

摘要

This article reexamines the theory of monetary power to explain the role of the Bundesbank (and Germany) in the emergence of the rules-based low-inflation regime in the late1980s and early 1990s. Our theory of monetary power draws on the notion of institutional power and the concept of monetary leadership, understood as the capacity to attract foreign investment, and thereby explains how domestic institutional features and contingent historical events affect countries' external monetary power. This theory is employed to trace how the Bundesbank go-it-alone strategy in 1989 triggered a cross-national sequence of events that changed the international monetary order in a way that was consistent with the German interests. The transition was marked by a shift from the US-led pragmatist approach of international macroeconomic coordination to a rules-based approach founded on the principle of low-inflation-targeting. The article argues that this change took place despite the opposition of the Federal Reserve System (Fed) and the US Treasury. The article contributes to the literature on the decline of US hegemonic power as well as the literature on the mechanism of institutional change at the international level. It also sheds new light on current debates about the putative decline of the rules-based world order.