The Currency of Politics: The Political Theory of Money from Aristotle to Keynes

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Currency Politics: The Political Economy of Exchange Rate Policy. Jeffry A. Frieden. Princeton University Press. 2016. A fresh and splendidly clear guide to the intellectual history of monetary policy. . . . The Currency of Politics is an invaluable guide to why — and how to think about what comes next."—Felix Martin, Financial Times The field of currency policy is increasingly important as the global economy becomes ever more integrated; however, it is poorly understood by the general public and often forgotten until a crisis arises. The influence of contingent political factors on the ability of governments to change their monetary policy is shown to be profound. Frieden makes his research accessible to a broader audience through Currency Politics; it is a challenging read in parts, but worth the effort to understand how national politics shape currency policy and the possible future of international currency regimes. It’s been a wild week in Westminster and it’s starting to look like the Tories are losing their grip. Ed and George chew over the Supreme Court’s judgment on Rwanda and what it means for Sunak. Could his new Foreign Secretary slam the brakes on some Tories’ hopes to leave the ECHR?

This excellent book is for anyone who has ever wondered about the origins of the Eurozone, the causes of the currency crises, and the importance of the classical gold standard. Frieden combines lively historical narratives with statistical analyses to show that currency politics are pretty much the same across time and space. No other author could bring out the common threads running through the book's cases so clearly." —J. Lawrence Broz, University of San Diego Alexander Slaski, Ph.D., is a postdoctoral fellow at Leiden University. His research focuses on the political economy of foreign direct investment, investment incentives, and currency flows in the developing world, particularly Latin America. His current book project examines how multinational firms shape regulatory policy in developing economies. His work has been published or is forthcoming in outlets including The Review of International Organizations, The Review of International Political Economy, and International Studies Quarterly. Notes The first chapters introduce basic policy choices for managing the monetary system: exchange rate regimes, either fixed, floating or pegged to another currency, and a currency’s price level. The choice of regime depends on competing demands for stability and flexibility, while the price level is held in tension between supporting price competitiveness for exporters and the purchasing power of consumers. A pathbreaking new intellectual history of monetary policy. In examining how key thinkers approached the economic crises of their respective times, Eich offers a map for navigating the politics of money today."—Daniel Steinmetz-Jenkins, The Nation

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Jeffry A. Frieden, Currency Politics: The Political Economy of Exchange Rate Policy (Princeton: Princeton University Press, 2015). As the campaign continued and the information uncertainty about potential policy toward Mexico diminished, one would expect that the effect of tweets on the peso would diminish. However, as Benton et al. note, even when tweets did not contain any new information (indeed, they often contained similar or even identical language to older tweets), they shifted prices in financial markets ( Benton and Philips 2020). That is, even though tweets should no longer have an effect if they did not contain new information, the effect of tweets on the peso continued. The explanation, again drawing on Benton et al., is that the frequency of tweets signaled a commitment to implementing those policies. Indeed, the size of that effect depends on both the frequency of his tweets against Mexico—a proxy for his willingness to target Mexico with harmful economic policies—and the severity of his rhetoric, including whether he mentions new specific proposals that would harm the Mexican economy. Thus, a repeated tweet signals a higher probability that the proposal is likely to be implemented and is not simply noise or “cheap talk.” A decade and a half later, they have a podcast. It’s called Political Currency, and it follows the stunningly successful format of The Rest Is Politics, where Blairite spin doctor Alastair Campbell and erstwhile Tory heavyweight Rory Stewart “disagree agreeably” about politics to millions of eager listeners. To distinguish themselves, Osborne and Balls are focusing specifically on economics (“currency” – get it?). Apparently they “have the knowledge and experience to explain how good politics follows the economics”. A look at how their careers ended – with Balls losing his seat in 2015 and Osborne’s ascendance cut short by the 2016 EU referendum – suggests this is up for debate. Jeffry A. Frieden, Professor of Government at Harvard University, has written a fine book on the determinants of decision-making regarding exchange-rate regime and, to some extent, exchange-rate level within the selected regime. The book is readable for both economists and political scientists. I recommend Currency Politics to both sets of scholars. Economists will learn about the political aspects of exchange-regime choice and political scientists about the economic aspects." -- Lawrence Officer, EH.net. In addition, I also score the tweets using a sentiment analysis technique. This technique adds value by allowing me to relax the assumption that all tweets have the same negative effect on the peso. Given that the text of the tweets are different and thus contain different information, it seems plausible that some may have a stronger effect than others. Scoring the tweets using a sentiment analysis technique allowed me to measure these differences. Further, Trump's method of speech makes it challenging to reliably score according to a sentiment analysis. Traditionally positive words are used in negative ways, meaning that rules to score tweets according to an affective dictionary can be ineffective. For example, “a beautiful wall” would be a positive tweet according to the dictionary, yet would entail negative economic policy toward Mexico. However, Trump uses other negative words in their traditional negative sense. It is not clear, on net, how well the sentiment analysis captures the negative or positive content of the tweets, given Trump's unusual use of language and unique style of speech.

If you are interested in this review, you may also like to listen to a podcast of Professor Frieden’s LSE public lecture, ‘Lessons for the Euro from America’s Past’, recorded on 19 January 2016. While the fragility of exchange rate commitments has been known since the publication of a 1995 paper by Obstfeld and Rogoff, the question of why some central banks fix the value of their currencies and others do not is less well understood. Jeffry Frieden’s Currency Politics provides a thoughtful guide to the political economy of exchange rate policy. ... H1: New negative policy information via a tweet from Trump will lead to a decrease in the value of the peso. Even though written clearly, this book is a challenging read; it surprises readers with sudden enlightenment on profound concepts like the impossible trinity, substitution and income effects of currency, the Mundell-Fleming-Dornush Framework, the Dornush overshooting model, and the optimum currency area theory, among others. As the author relates these concepts to historical events, the reader is compelled to continue reading the book until its conclusion."—Shishir Shakya, Review of Regional StudiesThe remainder of the paper outlines my theory about how foreign elections, and the policy risk they entail, should affect currencies, then tests the theory using data from currency markets. In the case of Mexico, I measure the average change in the value of the peso for tweets and find that the effect is strongest when Trump has the highest chance of winning (and thus when currency traders anticipated the highest probability that economic policy that would be harmful to Mexico would be implemented), as shown in figure 1. The causal mechanisms behind that effect are explained by both a signaling effect—the anticipated impact of economic policy on the value of the peso—and by the uncertainty regarding that policy becoming reality. Generalizing from the case examined in detail in this paper, one should expect other foreign electoral shifts to affect currency markets in close economic neighbors. It is important to note that the goal of this paper is not to measure and test the full universe of cases, but to highlight a previously overlooked phenomenon in the literature that reshapes our understanding of the determinants of currency markets, to rigorously test and measure that effect in one case in detail, and provide short case studies to supplement that core case. The theory and scope conditions discussed in the following section provide a framework for creating a set of testable hypotheses to examine this understudied phenomenon in other contexts beyond the cases highlighted in this paper. Theory and Causal Mechanisms Meanwhile, Keir Starmer faced a huge rebellion of his MPs over the SNP’s ceasefire amendment. Ed explains why this isn’t as big a threat to the Labour leader as it first appears... Some societies use Oxford Academic personal accounts to provide access to their members. See below.

A very good book. . . . Eich takes us on a fascinating journey."—Paul Sagar, Perspectives on Politics Currency Politics: The Eurozone Crisis and the World's Financial Future,” the Alice Gorlin Memorial Lecture, Oakland University, April 8, 2015. [If your Flash plugins are not up to date, there is a lower res. version available here.] Frieden undertakes careful examination of currency politics. . . . [M]eticulous [and] well-informed. . . . Recommended."— Choice In addition to the event analysis, I simply regress the probability of Trump winning on the Mexican peso. I use Nate Silver's 538 blog (the aggregate “chance of winning” polls-plus measure) for Trump's electoral probability. 16 Nate Silver's probability calculations are a widely used and respected aggregator of available public opinion polls. I also use the Iowa Betting Markets, given that it involves more than simply cheap talk, as bettors have a financial stake in the outcome and thus an incentive to gather accurate information about the electoral probabilities. 17

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The restricted dataset contains 80 tweets regarding Mexico. I assume (and confirm via review and hand-coding) that all remaining tweets are negative. I run several different event analyses, including on the time period after which he has announced his run but before the campaign as the Republican candidate (June 16, 2015 to May 3, 2016), the time period in which Trump is the presumed and then official candidate (May 3, 2016 to November 8, 2016), the time between election day and inauguration day (November 8, 2016 to January 20, 2016) and inauguration day to September 2017. The full list of dates and the text of the tweets is in the online appendix. Notably, if several tweets are issued in the same day, I treat them as a single event, and use the average sentiment score for all tweets on that day. The results of tweets are positive but small and not statistically distinguishable from zero before Trump was named as the Republican candidate. This would align with expectations, as Trump was considered a “long-shot” candidate at the time and thus the risk of him becoming president was perceived as low. During the campaign, when Trump was the presumptive Republican nominee, the effect of a tweet is approximately an increase of 0.05 pesos to the dollar (an approximately 0.25 percent change in percent terms). The effects also appear to persist in the window after the tweet. Again, this would align with expectations, as securing the nomination increased the probability of Trump being elected as president and thus should impact the effect of his tweets. Further, the tweets appear to have an effect regardless of whether they contain new or repeated policy information, providing support for both H1 and H2.

With deftness, elegance, and intellectual verve, Eich paints a vivid and compelling picture of the whole history of political and economic thought as revealed through an interrogation of money. It is clear that this insightful book announces a new and important voice in the field.” —David Singh Grewal, author of Network Power Eich’s extraordinary book provides an essential guide to thinking about the politics of money."— Adam Tooze H3: An increased probability of Trump being elected will lead to a decrease in the value of the peso. Empirical Approach In Currency Politics, Frieden not only draws together beautifully the strands of his previous work, but he advances a new and entirely persuasive explanation of the euro project as an essential bulwark against competitive devaluations. Above all, he argues convincingly for the centrality of exchange rate policy to domestic politics, international relations, and macroeconomics in open economies."—Ronald Rogowski, University of California, Los Angeles

Eich’s contribution demarcates a new space for political thought on money, and brings together key theorists on the structuration of money both to show that political thought often has a direct effect on the type of monetary system that is maintained, and to show that democratic agency vis-a-vis money is often wilfully ignored."—Dominic Burbidge, Politics and Poetics Eich’s work is sure to be a landmark in political science. His argument is bold and ambitious; his writing clear and engaging; and his message timely, persuasive and imperative."—Erik Jones, Survival A deep ex­amination of the theoretical and political foundations of money that rescues the money discus­sion from economists."—Pratap Bhanu Mehta, Open Magazine