Geography Reference
In-Depth Information
between the world's economic and political systems. World-systems theorists have
long maintained that the fundamental political geography of capitalism is not the
nation-state but the interstate system, which offers capital great leverage by flowing
across borders in ways that the reach of regulatory authorities cannot.
EFTS present the global system of states with unprecedented difficulties in
attempting to reap the benefits of international finance while simultaneously
attempting to avoid its risks. For example, Kobrin (
1997
, p. 75) notes
E-cash is one manifestation of a global economy that is constructed in cyberspace rather
than geographic space. The fundamental problems that e-cash poses for governance result
from this disconnect between electronic markets and political geography. The very idea of
controlling the money supply, for example, assumes that geography provides a relevant
means of defining the scope of the market. It assumes that economic borders are effective,
that the flow of money across them can be monitored and controlled, and that the volume
of money within a fixed geographic area is important. All of those assumptions are
increasingly questionable in a digital world economy.
Changes in the structure of institutional investing have had profound impacts on
this market: rapid movement of funds worldwide has meant that under- or over-
valued currencies are likely to be subjected to speculative attacks from large hedge
funds or financial institutions. The power of electronic money is evident when
currency speculators mount an attack on a given national currency, such as those
launched against the Thai baht in 1997, which initiated the disastrous Asian
financial crisis. Under such circumstances, political authorities can attempt to
manipulate exchange rates where the currency remains shackled by a ''managed
float'' or ''crawling peg'' system, typically harnessed to the U.S. dollar, but often
creating internal and external price distortions. Capital controls offer short-term
benefits but discourage long-run investments such as infrastructure development,
and often get mired in corruption. More drastically, they can raise interest rates.
The goal in such situations is to convince speculators that the national bank will
stay the course and commit whatever reserves are necessary to shore up its
currency by using the same leveraging tools as their private adversaries, but few
states possess the resources to maintain such a defense for long.
In short, Vernon's predictions, however premature, may have considerably
more validity at present than they did when his book first appeared. This is not to
say that the nation-state is obsolete, or event that it will be in the near future, but
rather that electronic money has markedly shifted the nature of international
finance
and
investment,
undermining
the
effectiveness
of
national
monetary
controls.
4.3 Offshore Banking
As Wechsler (
2001
, p. 43) notes, ''Thanks to globalization and advances in banking
technologies, distant countries are now just a mouse-click away.'' Thus, another
instance in which the peripheralization of relatively capital-intensive, routinized
