Benjamin J. Cohen
One of the most conspicuous manifestations of globalization in the contemporary era is the spread of cross-border competition among currencies. Over the last half century, linkages between national financial systems have grown increasingly tight: a particularly striking example of what Sylvia Ostry (this volume) calls "deeper integration" in today's world economy. As a result of this deeper integration, the strict dividing lines between separate national monies have become less and less distinct. No longer are economic actors restricted to a single currency-their own home money-as they go about their daily business. More and more, whether at home or abroad, market agents are able to exercise effective choice in deciding what currency to use as medium of exchange, unit of account, or store of value. This is the new geography of money-the new configuration of currency space. 1 The functional domain of each national money no longer corresponds precisely with the formal jurisdiction of its issuing authority. Currencies today have become increasingly deterritorialized, their circulation determined not by law or politics but rather by the dynamics of the global marketplace.
This deterritorialization of money poses a new and critical challenge to states. With accelerating cross-border competition, governments find they can no longer control the use of money, by either their own citizens or others. In that sense, as in other areas of policy explored in this volume by Robert Kudrle and by Debora Spar and David Yoffie, a traditional dimension of national sovereignty is critically threatened. In effect, a key function of governance is rapidly slipping from the grasp of governments into the hands of market forces. As in other issue areas, therefore, policymakers are increasingly challenged to cope as best they can.
To be sure, not all is lost for the conventional notion of monetary sovereignty. Money is fundamentally different from other issue areas where government is not a direct market actor, since even in an increasingly globalized setting the supply of money remains largely the privilege of the state. We are not yet in the world of "denationalized" currency advocated