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A Contemporary Concept of Monetary Sovereignty$

Claus D. Zimmermann

Print publication date: 2013

Print ISBN-13: 9780199680740

Published to Oxford Scholarship Online: January 2014

DOI: 10.1093/acprof:oso/9780199680740.001.0001

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A Revision of the Concept of Monetary Sovereignty 1

A Revision of the Concept of Monetary Sovereignty 1

Chapter:
(p.7) 1 A Revision of the Concept of Monetary Sovereignty1
Source:
A Contemporary Concept of Monetary Sovereignty
Author(s):

Claus D. Zimmerman

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780199680740.003.0002

Abstract and Keywords

Large parts of the literature analyse monetary sovereignty as a static catalogue of state competences in monetary and financial matters. Approaching the concept of monetary sovereignty that way invites the undertaking of judgments over the degree to which a given state has preserved or lost its monetary sovereignty. The approach adopted in this chapter is different as it examines whether the concept of monetary sovereignty itself, as a dual concept that possesses not only positive but also increasingly important normative components, is subject to evolution. After a review of the conceptual foundations and underlying legal theories of money and monetary sovereignty, this opening chapter assesses the conceptual evolution of monetary sovereignty under the impact of contemporary constraints on its exercise. Finally, the chapter looks into the conceptual implications of the proposed new understanding of monetary sovereignty for the evaluation of the exercise of sovereign powers in the realm of money.

Keywords:   Monetary sovereignty, conceptual evolution, sovereign powers, state competences, legal theories of money, positive and normative

Introduction

In political and legal discourse, the essence of the concept of sovereignty continues to be defined as the supreme and independent control by states of their internal affairs, subject only to the recognized limitations imposed by international law.2 As famously phrased by Max Huber in his award in the Island of Palmas Case: ‘Sovereignty in the relations between States signifies independence. Independence in regard to a portion of the globe is the right to exercise therein, to the exclusion of any other State, the functions of a State’.3 As elaborated in the general introduction to this monograph, in the realm of contemporary monetary and financial affairs it appears appropriate to define these ‘functions of a State’, ie its sovereign powers, as covering the formal state competences to create money via the issuance of currency and via the regulation of credit, to conduct monetary and exchange rate policies, to determine the appropriate amount of current and capital account convertibility, and to organize financial regulation and supervision.

As noted earlier, large parts of the existing literature analyse monetary sovereignty as a purely positive concept, ie as nothing more than a static catalogue of formal state competences in monetary and financial matters.4 Approaching the concept of monetary sovereignty that way invites the undertaking of judgments over the degree to which a given state, the members of a monetary union, or the international community as a whole, should be considered as having preserved or as having lost their respective monetary sovereignty under the impact of various economic and legal constraints on the exercise of the sovereign powers in the (p.8) realm of money. Indeed, as has been rightly observed by John Jackson, ‘most (but not all) of the time that “sovereignty” is used in current policy debates, it actually refers to questions about the allocation of power; normally “government decision-making power”’.5

The approach adopted herein is different. Certainly, nowadays most states are subject to various legal constraints on the exercise of their sovereign powers in the realm of money, notably to those legal constraints that arise from their membership of the IMF or, on a regional level, of a monetary union. In addition, and probably much more importantly, there is no doubt that factual constraints brought about by economic globalization and the increasing integration of financial markets worldwide have rendered several formal state competences in monetary and financial matters essentially hollow. But does this undeniable erosion of the formerly exclusive character of certain state competences imply, as is being claimed in much of the existing literature, that monetary sovereignty as a legal concept is no longer more than a figure of speech?

Attempting to fill an important gap in the literature, this opening chapter examines whether the concept of monetary sovereignty itself, as a concept having not only positive but also increasingly important normative components, is subject to evolution and is still of any actual relevance. It will be argued in this chapter, and indeed throughout this monograph, that monetary sovereignty is still more than a mere rhetorical framework for debates on specific rights and duties of states.6 Monetary sovereignty is still relevant today as a legal concept for evaluating the contemporary exercise of sovereign powers in the realm of money and for improving our understanding of the driving forces behind the evolution of the law in this important field. Subsequent chapters of this monograph will test and substantiate this view, putting it critically into perspective.

After a review of the conceptual foundations and underlying legal theories of money and monetary sovereignty (Part I), this opening chapter assesses the conceptual evolution of monetary sovereignty under the impact of contemporary constraints on its exercise (Part II). Finally, the chapter looks into the conceptual implications of the proposed new understanding of monetary sovereignty for the evaluation of the exercise of sovereign powers in the realm of money (Part III).

I. Money and Monetary Sovereignty in International Law: Conceptual Foundations and Underlying Legal Theories

This first part provides a succinct overview of the historical and doctrinal origins of the concept of monetary sovereignty (Section A) before examining the legal theories of money and their respective relevance today (Section B).

(p.9) A. Ex post facto ius oritur:7 classical monetary sovereignty in context

Providing a detailed overview of the historical and doctrinal origins of the concept of monetary sovereignty would go well beyond the scope of this study.8 For the conceptual review undertaken in this chapter it is important, however, to look into one specific characteristic of the concept of monetary sovereignty; one that it shares with many other legal and political concepts. Originally, it was not political reality that was shaped and determined by an abstract concept of monetary sovereignty as developed by outstanding philosophers or jurists. Instead, historical and political developments established certain facts in the first place and the related concept was developed only at a later stage, in an attempt to analyse reality as part of a legally coherent framework, thereby strengthening the monarch’s power base: ex post facto ius oritur…

The writings of Jean Bodin (1529–1596) in Les Six Livres de la République (1576) are the first systematic expression of the principle of sovereignty as the key foundation for the exercise of state power.9 Bodin’s concept of sovereignty is of particular interest for the present chapter as it explicitly incorporated the royal prerogative to coin money.10 Bodin is likely to have been influenced by a much less famous contemporary, François Grimaudet (1520–1580).11 Both Bodin and Grimaudet came from the French city of Angers. In 1560, Grimaudet had given an important speech in which he proclaimed that ‘the welfare of the State demanded the subjection of the ecclesiastical to the civil power, in whose hands all the functions of society were legally invested’.12 In his major treatise The Law of Payment (1579) Grimaudet insisted that ‘the value of money depends on the State; that is to say, in a monarchy, upon the prince, and in an oligarchy, upon the State, which alone has the right to coin money, or to have it coined and to stamp a valuation upon it’.13 Bodin and Grimaudet had an important precursor in Charles Dumoulin (1500–1566), also known as Molinaeus, who is commonly (p.10) regarded as having laid the basis for the modern principle of nominalism14 in his treatise Tractatus commerciorum et usurarum (1546).15 Writers like Charles Loyseau (1566–1627) and Cardin Le Bret (1558–1655) lent further conceptual support to the absolutist monarchs’ unfettered right to change the value of the coins they issued.16

It is important to stress that the exclusive competence of the sovereign to issue money had de facto already existed well before the above-mentioned writers elaborated a consistent conceptual underpinning for it, thereby providing a widely accepted justification for monetary sovereignty as held by the absolutist monarchs of the time.17 De facto, the French kings had claimed a full monetary prerogative as early as in the thirteenth and fourteenth centuries, going well beyond the traditional right to coin money (ius cudendae monetae). Based on their claim that the money fully belonged to the king as his ius et proprietas,18 the absolutist monarchs of the time insisted on their right to change the value of the money as they deemed fit.19

Early on, however, other jurists, in particular from outside then absolutist France, called into question the monarch’s unfettered monetary sovereignty. The Spanish Jesuit Juan de Mariana (1536–1624), for instance, denied the monarch the right to reduce arbitrarily the weight of coins arguing that any such alteration of the monetary substance unduly deprived the monarch’s subjects of their very own fortune. Samuel von Pufendorf (1632–1694) further insisted that the value of a coin should be changed only in case of great need or danger and only in as much as was absolutely necessary and that, ultimately, the monarch was obliged to re-establish the original state of affairs.20 Last but not least, Emmerich de Vattel (1714–1767), in his famous treatise Le Droit des Gens, equally accepted the idea that monetary sovereignty implies not only rights but also duties for the monarch.21

When it comes to assessing the importance of the writings by this last group of authors for the overall concept of monetary sovereignty, the literature is divided. François Gény asserts that it was a broadly acknowledged principle in the legal philosophy of the eighteenth century that states are subject, in their exercise of monetary sovereignty, to certain superior rules depending on overarching ideas of justice and general welfare.22 Dominique Carreau has criticized this as a hazardous conclusion. He argues that the doctrinal work of the previously cited French writers (p.11) and, even before that, consistent state practice, have made monetary sovereignty, as one of the key attributes of general state sovereignty, the central foundation of the modern state.23 Overall, it would appear that the positions of both authors do not entirely exclude each other. Both should be read as providing valuable lessons for any contemporary analysis of the conceptual evolution of monetary sovereignty such as the present one.

It is indeed very important to keep in mind, as elaborated by Carreau, that the concept of monetary sovereignty was originally elaborated by loyal legal writers, in an attempt to integrate the already well-established exercise of internal monetary sovereignty by absolutist monarchs into a coherent legal framework. However, whereas monetary sovereignty as an essential attribute of general state sovereignty may always have been particularly important to states in the modern era, the concept itself has never expressed a sacrosanct, constitutional, privilege of the sovereign. The concept was originally developed to provide justification ex post to the exercise of state power in the monetary realm in a narrow sense, at a time when the central power in most states was still very weak.

As will be analysed in Parts II and III of this chapter, it is difficult to see why the concept of monetary sovereignty should not have significantly evolved since then, in order to continue to integrate the exercise of state competences in the realm of money into a coherent legal framework shaped by evolving contemporary constraints. Gény’s observation concerning the majority position in the legal philosophy literature of the eighteenth century is of particular interest in this regard. As rightly observed by Carreau, the idea that monetary sovereignty entails both rights and obligations for states has not (yet) become part of the majority position in international law. However, the fact that as early as in the seventeenth century, when the concept of monetary sovereignty was as yet in a nascent state, legal writers seriously contemplated monetary sovereignty as a both positive and normative concept constraining state power and not only as fettering an unbounded exercise thereof, indicates that it is necessary to embark on a more detailed scrutiny of the concept.

Before embarking on this chapter’s central analysis of the extent to which the concept of monetary sovereignty has evolved under contemporary constraints on its exercise, a brief look needs to be taken at whether the legal understanding of what constitutes money is itself subject to change.

B. The legal theories of money and their respective relevance today

The basic concept of what amounts to ‘money’ has traditionally been significantly larger in economics than in law. For economists, money is everything that is generally accepted as payment for goods and services and as repayment of debts.24 The four (p.12) essential functions ascribed to money by economists are: money as a unit of account, money as a means of payment, money as a means of exchange, and money as a store of value. In economic terms, the money stock or money supply designates the total amount of money available in an economy at a given time. However, there is no single accepted economic definition of which assets are included under the general term ‘money’.25 That is why, for the purpose of conducting monetary policy, the money supply is usually broken down into more or less narrowly defined monetary aggregates, the main ones of which are M0, M1, M2, and M3 (with M0 (notes and coins) being the narrowest aggregate and M3 (extending to various types of deposits like savings and demand deposits) being the largest).26

By contrast, three different legal theories exist for what constitutes money. According to the still largely dominant State theory of money, which was developed to a large extent by FA Mann, only that which is recognized as money under the law of the issuing jurisdiction has the legal quality of money.27 It is not only the state’s monopoly in issuing notes and coins, but in a larger sense the state’s predominant role in establishing a monetary system that the State theory of money is built (p.13) upon.28 Mann’s thoughts on the subject appear to have been informed by the writings of the German economist Georg Friedrich Knapp who, as early as in 1905, wrote that only chattels issued by the legal authority of the state could acquire the character of ‘money’, and that the value to be attributed to them is fixed by law, rather than by reference to the materials employed in the process of production.29

The State theory of money has traditionally been analysed as a corollary of the sovereign power over currency, and its global acceptance has even led to it being indirectly recognized in several modern constitutions, like for example Article 1, section 8, paragraphs 5 and 6 of the US Constitution and Article 73(4) of the German Grundgesetz (in both cases by vesting the exclusive legislative authority in monetary matters in the federal state).30 However, the State theory of money has the widely acknowledged downside that, under this theory, only a tiny percentage of the actual money stock in a modern economy qualifies as money in a strictly legal sense. Scriptural and electronic money as the largely dominant payment instruments nowadays do not constitute money according to the State theory of money. Scriptural money, and therewith the huge bulk of all bank deposits, does not amount to money but to credit according to the State theory of money which regards electronic money merely as a specific technique for using scriptural money.31

In order to overcome this widening gap between economic reality and the legal concept of money, very early on a so-called Societary theory of money has appeared in the legal literature with Friedrich Carl von Savigny (1779–1861) in the nineteenth century and Arthur Nussbaum (1877–1964) in the middle of the twentieth century being its first outstanding proponents.32 According to this theory, it is not a formal decision by the state, but the attitude taken by society—as expressed in the practices of commercial life—which is relevant in deciding what counts as money. In his famous treatise Money in the Law—National and International, Nussbaum argued convincingly as follows:

[I]n the phenomenon of money the attitude of society, as distinguished from state, is paramount…[A]s a matter of legal theory…the Societary process which gives life to money is not exactly a process of ‘customary law’. It does not engender new canons of law. Similarly, as in the emergence of new types of negotiable instruments the process only widens the range of things to which a pre-existing body of rules – in this case of rules of monetary conduct – may be applied. By no means does the [S]ocietary theory of money deny the fact that normally the modern state exercises full power over the currency. But legal (p.14) theory has to take care also (and in a sense primarily) of abnormal and controversial situations. This test the State [t]heory of money cannot stand.33

Nussbaum’s analysis still seems perfectly valid and, if anything, appears to have gained in power over the past decades. The State theory of money certainly provides a perfectly coherent definition of what constitutes money in a strictly formal sense. Its increasing inability, however, to properly recognize as money in the legal sense, most monetary aggregates that form the monetary stock in a modern economy and which are the objects of monetary policy, clearly indicates that the State theory of money has to a large extent become outdated.

It should be noted, however, that abandoning the rigid corset of the State theory of money and harmonizing the legal concept of money with economic reality would not entail any immediate practical consequences. Scriptural money may not qualify as ‘money’ under the still dominant State theory of money. However, as ‘credit’ it is already now well integrated into a sophisticated legal framework devised by states. Similarly, timeless yet increasingly widespread phenomena such as local or regional currencies34 as well as virtual or digital currencies35 may not amount to (p.15) ‘money’ under the State theory of money. However, even without enjoying the capacity of being legal tender, and depending on their precise design, these innovative types of money can be coherently analysed as being either simple commodities, scrips, or vouchers. In other words, adhering to the State theory of money may seem increasingly out of touch with economic reality, but it does not create a legal grey area. At least arguably, however, broadening the legal concept of money and adapting it to the evolving usages of commercial life as suggested by the Societary theory of money is about more than changing names. As noted above, the State theory of money is deeply enshrined in the classical concept of monetary sovereignty. If one admits, as will be argued below, that monetary sovereignty is not a static concept but that it continues to evolve, then sticking to the State theory of money, despite its loss of touch with economic reality, might put the consistency of the concept of monetary sovereignty itself at risk.

Finally, a few words need to be said with respect to a ‘third’ theory of money, the so-called Institutional theory of money, which has more recently been introduced into the legal literature by Antonio Sáinz de Vicuña, the current general counsel of the European Central Bank (ECB).36 The Institutional theory of money is based on the presupposition that the concept of legal tender underpinning the State theory of money has become outdated as a consequence of the overwhelming use of scriptural money in today’s economy.37 As elaborated by Sáinz de Vicuña:

the concept of money, in a situation of global markets and modern communication technologies, is now inseparable from the institutional set-up of the central banks (that is, their independence, mandate, and instrumentaria) and from the normative framework under which central banks, credit institutions, financial infrastructures (for example, payments systems), and markets operate, which ensures the stability and the functionality of money. The value of money no longer depends on the will of the individual sovereigns.38

However, as a ‘third’ legal theory of money, the Institutional theory of money does not appear to be substantially different from the Societary theory of money as refined by Nussbaum. As noted above, the Societary theory of money perfectly recognizes that the definition of the monetary system remains the prerogative of the (p.16) state, and does not take a merely functional approach, contrary to what some authors have claimed.39 The fact that the legal literature has not proceeded to a further elaboration of the Institutional theory of money supports the view that it should not be regarded as an independent ‘third’ legal theory of money, separate from the Societary theory of money. It still remains that Sáinz de Vicuña’s Institutional theory of money constitutes a valuable reminder not only of the shortcomings of the State theory of money but also of the crucial importance of the institutional and normative framework in which modern monetary policy is being conducted.

Having completed this review of the foundations of the concepts of money and monetary sovereignty, this chapter now turns its attention to the conceptual evolution of monetary sovereignty under the impact of contemporary constraints on its exercise.

II. The Conceptual Evolution of Monetary Sovereignty Under the Impact of Contemporary Constraints on its Exercise

After analysing whether monetary sovereignty has become factually eroded or whether it has conceptually evolved in light of the dual nature of sovereignty as a both positive and normative concept (Section A), this second part explains that, in order to fully expose the concept’s underlying nature, monetary sovereignty may be best understood as what has been called an ‘essentially contested concept’ in the philosophy of language (Section B).

A. Factual erosion of monetary sovereignty or conceptual evolution in light of the dual nature of sovereignty?

The contemporary exercise of the various sovereign powers in the realm of money40 is subject to both legal and economic constraints. The constraints on the exercise of monetary sovereignty that arise from customary international law41 and international treaties (most notably the IMF Agreement with its Articles IV42 and VIII43) have (p.17) been rightly analysed in the literature as constituting only relatively minor constraints for states compared to the factual economic constraints that have arisen from economic globalization and the increasing integration of financial markets.44 On the purely legal side there are even examples, notably the Second Amendment of the Fund’s Articles in 1978, preceded by the de facto breakdown of the IMF’s par-value system in 1971, where states can be regarded as having recovered a large margin of discretion with respect to the exercise of at least one sovereign power in the realm of money, namely the conduct of exchange rate policies.45 On the regional level, states that enter into a monetary union thereby consent to major constraints on how they may exercise various sovereign powers in the realm of money. Some of these powers are usually even transferred to the organs of the union altogether.46

In addition to legal constraints like the ones addressed above, the factual constraints on the exercise of monetary sovereignty have been thoroughly analysed in the existing literature. The latter is right to point to the increasingly dominant role of global financial markets and to argue that many formal state competences in monetary and financial matters give an impression of regulatory flexibility that states do de facto no longer enjoy. The following examples perfectly illustrate this state of affairs. To begin with, Article VI:3 of the IMF Agreement certainly leaves IMF members entirely free to impose capital controls as long as they are not exercised in a manner that will restrict payments for current transactions. However, once a state has liberalized its capital account, the economic cost of reversing this move and reintroducing capital controls in the future is likely to prove prohibitive.47 The loss of factual state control is even more impressive with regard to money creation.48 Notes and coins, ie the currency in circulation, account for no more than approximately 10 per cent of the money supply in developed countries,49 with various forms of scriptural money, notably eurocurrencies50 and (p.18) rapidly spreading innovative financial instruments (notably credit derivatives), having played an increasingly important role (mainly, but not exclusively, for professional market players) since the onset of economic globalization in the 1960s.51

However, the undeniable fact that states are subject to a great number of consensual limitations and to increasingly powerful factual constraints in their exercise of what were formerly exclusive state competences in the realm of money, does not imply that the states concerned have given away their monetary sovereignty as such. As briefly noted in the general introduction to this monograph, it is crucial not to overlook the fact that the concept of sovereignty can be validly approached in two ways: directly, by focusing on the supreme and irreducible authority of independent states, and indirectly, by looking at the various sovereign powers that originally all derive from the same source, namely the capacity of independent statehood. As analysed in a timeless manner a century ago by Carré de Malberg, whereas sovereignty as the supreme authority of independent states is irreducible, sovereignty, if looked at through the prism of the powers originally vested in sovereign states, can be shared.52 This same differentiated view of sovereignty is reflected in the position adopted by the PCIJ in the first case that came before it, the Case of the SS ‘Wimbledon’ of 1923:

The Court declines to see in the conclusion of any Treaty by which a State undertakes to perform or refrain from performing a particular act an abandonment of its sovereignty. No doubt any convention creating an obligation of this kind places a restriction upon the exercise of the sovereign rights of the State, in the sense that it requires them to be exercised in a certain way. But the right of entering into international engagements is an attribute of State sovereignty.53

(p.19) In light of the almost exclusive focus of the existing literature on analysing the factual and legal constraints on the exercise of the various sovereign powers in the realm of money, ie on monetary sovereignty as a positive concept,54 it is not very surprising that most authors have concluded that monetary sovereignty has become gradually eroded and outdated. However, approaching monetary sovereignty as a purely positive concept captures at best half the picture. With respect to sovereignty in general this dilemma has been perfectly described by Robert Howse as follows:

In understanding the significance of globalisation…for sovereignty we must always bear in mind the fundamentally dual…nature of the concept—that it remains both a statement of a normative ideal…and a judgment about the actual capacity of states and/or their governments to affect or determine outcomes…The way in which sovereignty continues to structure and restructure global order cannot be properly appreciated or explained through attempts to simplify the idea into a purely normative or purely positive concept. The formalism with which many international lawyers continue to treat sovereignty is perhaps a way of trying to avoid this difficulty but at the cost of not being true to the phenomena, and in many respects…distorting them.55

As will be argued throughout this chapter and, indeed, this monograph, monetary sovereignty, due to its dual nature as a concept with both positive and normative components, is not a rigid or static concept but adapts constantly to a changing economic environment, with its normative components providing valuable regulatory guidance to those exercising sovereign powers and serving as a legitimacy benchmark for the contemporary exercise of sovereign powers in the realm of money and finance. However, prior to looking at these and other conceptual implications of a contemporary understanding of the concept of monetary sovereignty, the following section will approach it as an essentially contested concept in order to fully expose the concept’s underlying nature.

B. Contemporary monetary sovereignty as an essentially contested concept

Monetary sovereignty might be best understood as what has been termed an ‘essentially contested concept’ in the philosophy of language.56 Samantha Besson appears to have been the first to analyse sovereignty as an ‘essentially contested (p.20) concept’57 and Dan Sarooshi further added to this analysis.58 In the words of Besson:

[An essentially contested concept] is a concept that not only expresses a normative standard and whose conceptions differ from one person to the other, but whose correct application is to create disagreement over its correct application or, in other words, over what the concept is itself…[T]he recognition of the essentially contestable nature of a concept is an analytical statement. It implies the possibility of conceiving a concept as normative, that is to say as encompassing a contestable value.59

Due to the intrinsic relationship between the concepts of general state sovereignty and monetary sovereignty as described earlier in this chapter,60 many of Besson’s findings with respect to sovereignty in general can be directly applied to the present analysis of the concept of monetary sovereignty. In particular, it appears valid to say with Besson that monetary sovereignty, in the same way as sovereignty,

[i]s not a merely prescriptive political concept that insists on constraining political and legal reality according to an abstract standard. Nor is it a purely descriptive political concept that refers to an independent and objective reality…[Monetary] [s]overeignty should be entitled to remain the same concept and hence [provide] a conceptual framework in which debate can take place, while also fluctuating at the same time through changes of paradigms and of conceptions; the essential contestability of [monetary] sovereignty ‘can account for both change and for continuity in change’. Instead of understanding [monetary] sovereignty as a mere fact or as a purely normative standard, the concept’s essential contestability makes it possible to account for its institutional and discursive resilience while also respecting its normative input.61

The above view is perfectly in line with the analytical stance taken in this chapter and as applied throughout this monograph: monetary sovereignty is not a static and purely positive concept that over time has moved away from the political reality it once described and whose prescriptive elements have become hollow. Contemporary monetary sovereignty certainly stands in conceptual continuity with the doctrinal and historical origins of classical monetary sovereignty, but the concept’s (p.21) nature is essentially dynamic. Both its positive and normative components are subject to constant evolution, thereby enabling the concept to adjust to the changing economic environment brought about by increasing globalization and financial integration.

In order to amount to an essentially contested concept, a concept must be (i) intrinsically complex (ie it must encompass different dimensions of meanings), (ii) a-criterial (ie it must lack immutable minimal criteria of correct application), and (iii) normative (ie it must express and incorporate one or several values).62 The first two criteria are obviously fulfilled with respect to monetary sovereignty. The concept itself opposes different dimensions of meanings such as external and internal monetary sovereignty or the exercise of essential parts of monetary sovereignty by international organizations or by the community organs of a monetary union to name just the two outstanding examples.63 That there is no commonly agreed upon set of minimal criteria of correct application of monetary sovereignty should equally have become obvious over the course of this chapter. In any event, it is essential to keep in mind that:

[c]oncept determination amounts to more than a mere description of the concept’s core criteria… [T]he determination of the concept of [monetary] sovereignty cannot be distinguished from the values it entails and from the normative discussion that generally prevails around it.64

It is interesting to note at this stage, as has rightly been pointed out by Vaughan Lowe, that up to the nineteenth century ‘it remained common practice in treaties of cessation to refer to transfers of “tous les droits de souveraineté”, as if sovereignty really were the bundle of separate public rights that it had been considered to be in feudal times’.65 However, as explained in the preceding section of this chapter, (p.22) although a thorough understanding of the various legal and factual constraints on the contemporary exercise of the sovereign powers in the realm of money is important, monetary sovereignty is clearly no longer limited to the concept’s positive components. Under a contemporary understanding of international law it would be inconsistent to contest that monetary sovereignty entails constantly evolving values. Nevertheless, acknowledging the normative nature of essential constituent elements of monetary sovereignty does not mean that the entire concept is normative,66 nor even that the entire concept is purely normative. As noted earlier, any characterization of monetary sovereignty as a purely positive or purely normative concept would amount to an inappropriate oversimplification. Importantly, in order for monetary sovereignty to amount to an essentially contested concept, it is not necessary (besides fulfilment of the other two characteristics) for the entire concept to be normative. It is enough that the concept expresses and incorporates also one or several values that are themselves, by their very nature, subject to constant evolution and contestation.

As for more general notions of sovereignty, the crucial question whether or not monetary sovereignty incorporates specific values that can adapt over time hinges upon the fundamental task of determining the locus of monetary sovereignty, ie of determining the true holder(s) of monetary sovereignty. Are the sovereign powers in the realm of money original powers of national governments, which national rulers may exercise at their full discretion, or are they rather the people’s powers with the government (or international organizations upon further conferrals of powers67) being merely entrusted with their execution? The answer to this question is so obvious that it is not necessary to address it in great detail. Back then when the concept of monetary sovereignty first appeared in order to support the exercise of the royal prerogative to coin money as exercised by absolutist monarchs, the locus of both sovereignty and the power to exercise it may still have been identical. Times have obviously changed.

The contemporary mainstream view of states being instruments at the service of their peoples as true holders of sovereignty68 may be regarded as a corollary of the fundamental idea of popular sovereignty or sovereignty of the people. Similarly, and closely related to the notion of popular sovereignty, the idea of social contract (p.23) as developed in the writings of Thomas Hobbes (1588–1679), John Locke (1632–1703), and Jean-Jacques Rousseau (1712–1778) is still relevant today and serves as a strong argument for considering monetary sovereignty as incorporating evolving values.

According to the social contract school, individuals give up some rights in return for protection by those entrusted with the power to rule. Applied to the monetary realm at a time of economic globalization and ever-increasing financial integration this would mean that peoples all over the world, as true sovereigns, may validly be regarded as having entrusted those in power with the exercise of the relevant competences in monetary and financial matters out of recognition that certain policy objectives can only be achieved if the exercise of certain powers is centralized. This is a clear expression of the complex dual nature of monetary sovereignty as a dynamic concept with both positive and normative components. Although national governments, or anybody else exercising sovereign powers upon conferral of these powers, might not always be bound by a formal and explicit catalogue of objectives that must be achieved or of specific values that must be observed, they can certainly not be regarded as being entirely free to conduct whatever policy they deem fit. Those in power are responsible before the true sovereign, ie their people, for working diligently towards the achievement of the objectives which the contemporary social contract in the monetary field rests upon. As noted earlier, these objectives, the normative components of monetary sovereignty, are not static in nature but adapt over time to changing economic and political circumstances.69

Abandoning the still dominant, yet outdated, classical approach of the concept of monetary sovereignty thus appears to be perfectly in line with the widespread, broader, acknowledgment in contemporary international law that the notion of sovereign statehood itself is changing under the impact of the evolving core values enshrined in the concept of sovereignty. As analysed by Daniel Thürer:

Considering the evolution and integration of the international legal order, sovereignty cannot just mean the final, superior decision-making power (‘Höchstmächtigkeit’ or ‘letzte Entscheidungsgewalt’) under international law. It also implies…the idea that a state is a political community which is invested with the effective power to grant, to realize and to implement certain basic values inherent in the principle of the ‘rule of law’ understood in a substantive sense…[D]ue to its purpose and because of its very nature state sovereignty represents a value-laden notion. It does in fact, as a concept of present-day international law (p.24) imply the capacity to realize human rights and other basic values recognized by the international community.70

Overall, it clearly emerges that in order to fully understand the continuing relevance of the concept of monetary sovereignty under the impact of contemporary factual and legal constraints it is necessary to take a closer look at the evolving values that are expressed by, and incorporated in, monetary sovereignty as a contemporary concept and to assess the implications of the conceptual revision undertaken in this chapter. This takes us directly into the final part of this opening chapter.

III. Conceptual Implications for the Evaluation of the Exercise of Sovereign Powers in the Realm of Money

This final part takes a close look at the normative components of the concept of monetary sovereignty which provide regulatory guidance and serve as a legitimacy benchmark for the contemporary exercise of monetary sovereignty (Section A) before analysing the concept of contemporary monetary sovereignty as a special form of cooperative sovereignty (Section B).

A. The normative components of contemporary monetary sovereignty as regulatory guidance and a legitimacy benchmark

The constituent values of contemporary monetary sovereignty are diverse and it appears impossible to come up with an exhaustive and incontestable list. However, as pointed out by Sarooshi with respect to general state sovereignty, the fact that such a list will be ‘continually subject to contestation and change’ is perfectly in line with the idea of an essentially contested concept.71 As explained below and substantiated throughout this monograph, the concept of monetary sovereignty certainly incorporates and expresses both more general values like democracy, equality, accountability, and legitimacy, and more specific ones like economic development, the maximization of global welfare, the maintenance of financial integrity, as well as the promotion of financial and monetary stability. At a time of ever-increasing economic globalization and financial integration and in light of the damaging, yet insightful, experience of the Global Financial Crisis of 2007–2009 and the severe recession triggered by it in large parts of the world,72 it seems (p.25) appropriate to regard the last three values, ie the promotion of monetary and financial stability as well as the maintenance of financial integrity, as increasingly important key values of contemporary monetary sovereignty.

How are these values defined and what role do they play in practice?

Monetary stability.73 Achieving monetary stability is usually the central target of monetary and, more specifically, interest rate, policies as conducted by central banks. It is important to keep in mind in this context that there is both an internal and an external dimension to monetary stability. It emerges from a detailed study of central bank objectives undertaken by François Gianviti, a former general counsel of the IMF, that in most central banking laws worldwide, monetary stability is defined as the stability of domestic prices.74 As explained in detail by Gianviti, this is due to the economic reality that external price stability (in terms of the exchange rate with a given major currency) and domestic price stability are in fact two distinct objectives, incompatible with each other in the long run.75 For example, a central bank that increases the monetary base in order to prevent its currency from appreciating in line with economic fundamentals, thereby aiming to maintain an unrealistic currency peg, will in the long run fuel inflation, thus endangering domestic price stability.76

Gianviti’s survey further shows that what precisely is to be understood by domestic price stability is often not explicitly defined unless the country concerned is one of those with a specific procedure in place for the formulation of an explicit inflation target or some other form of quantified price objective.77 In countries lacking a formal definition of the objective of domestic price stability, the understanding of that objective is subject to the central bank’s case-by-case interpretation and, to the extent that the central bank is not entirely independent,78 to the approval and review by the government.79 However, Gianviti’s survey identifies a (p.26) global trend towards the adoption of quantified price objectives as opposed to allowing central banks to conduct monetary policy without publicly announcing specific objectives.80

Gianviti’s study indicates that there now seems to be a common understanding on what to understand by the objective of domestic price stability. Thus, while domestic prices are those of domestic goods and services, asset prices are not usually covered by the term. As regards ‘stability’, there now appears to be broad consensus that while a total absence of inflation would discourage investment and thus stifle economic growth, an annual price increase of 2 per cent would still be consistent with the objective of domestic price stability.81

Thus, some countries have adopted inflation ceilings whereas others consider the setting of inflation targets to be the preferable approach. An inflation target may take the form of a ‘point inflation target’, ie a specific percentage increase of consumer prices, such as the Bank of England’s inflation target of 2 per cent, or of a ‘target inflation range’ which seems to be the more common approach and which is adhered to, for example, in Canada and Sweden.82 An interesting example in that context is the approach taken by the Governing Council of the ECB as it has shifted from an outright inflation ceiling of 2 per cent to a hybrid definition of price stability that might appropriately be qualified as a ‘targeted inflation ceiling’. Thus, the Governing Council of the ECB has clarified that, in pursuing domestic price stability as the ECB’s primary policy objective, it seeks to keep inflation below, but close to, 2 per cent over the medium term.

This leads us directly to what is arguably the contemporary key difference between the interest rate policies pursued by different central banks. While the formal adoption of an inflation target (or target range) amounts to an implicit acknowledgement that the central bank wishes to contribute, via the way it conducts monetary policy, to economic growth and employment, some central banks, notably the Fed, also aim to achieve a desired level of growth in real activity as part of their monetary policy.83 Thus, in early December 2012, the Fed went as far as to as explicitly specify that its objective was to push the US unemployment rate below 6.5 per cent and that it would therefore leave interest rates at close to zero provided its inflation expectations did not rise beyond 2.5 per cent.84

Pursuing a dual objective of both price stability and economic growth/full employment becomes problematic when both objectives enjoy equal priority. Under such a scenario, pursuing an objective of promoting growth in real activity may prove incompatible with the objective of controlling inflation. This is due to (p.27) the fact that whereas price stability as sole or primary monetary policy objective makes action by the central bank predictable and reliable a dual objective undermines the central bank’s commitment to price stability. This may happen if the population gains the impression that, faced with the dilemma of choosing between an economic downturn and higher inflation, the central bank will attach higher importance to its objective of full employment.85

The Fed’s and the ECB’s different responses to the onset of the Global Financial Crisis in 2007 and 2008 are highly insightful in this context. The Fed reacted with a series of interest rate cuts aimed at saving employment while the ECB kept interest rates unchanged for much longer in order not to endanger domestic price stability. This example illustrates that the current lack of harmonization in the way interest rates policies are being conducted in the pursuit of different monetary policy objectives by central banks may lead to major differences in how similar economic problems are tackled across different countries.

Financial stability. Many different definitions have been advanced in the economics literature for financial stability, the other key objective pursued by most central banks worldwide even though, strictly speaking, financial stability is not an objective of monetary or interest rate policies. Usually, financial stability is defined in an indirect manner as the absence of financial instability. A broad and systemic approach defines financial instability as the prevalence of a financial system that is unable to ensure, in a lasting way and without major disruptions, an efficient allocation of savings to investment opportunities.86 Financial regulation on minimum capital ratios for banks is the main, but not exclusive, tool for avoiding financial instability (in particular in order to reduce systemic risk, ie multiple bank failures as a result of contagion). Although there is no common position in the economics literature on the precise interdependence of monetary stability and financial stability, it seems broadly admitted that both phenomena are intrinsically linked and reinforce each other, which seems equally true for the two instability scenarios.87 Thus, as pointed out by Gianviti, while in most cases, securing financial stability will be supportive of achieving monetary stability, a central bank may face a conflict of objectives in the conduct of its monetary and interest rate policies once it becomes engulfed in a financial crisis.88 Gianviti cites the example of a major financial crisis in which the central bank, in order to safeguard a financial system on the verge of collapsing, decides to bail out numerous systemically important financial institutions, partly without collateral, on top of lowering its interest rates and injecting short-term liquidity into the banking system; in addition, the central bank may even be exposed to significant public pressure to purchase large amounts of government bonds to finance budget deficits arising (p.28) from countercyclical measures taken to mitigate the crisis.89 In the long run, the thus injected amounts of central bank money, all injected in the name of financial stability, may endanger monetary stability in the sense of domestic price stability.

Based on the above, it would be wrong to conclude that central banks should not aim to safeguard financial stability in addition to pursuing their monetary policy objective(s), in particular as both monetary and financial stability will in most cases reinforce each other. However, while a sovereign state is free to determine in the statutes of its central bank that the objective of monetary stability takes priority over that of financial stability, such an order of priority would effectively have to be abandoned in the case of a severe crisis. Although, strictly speaking, financial stability is not an objective of monetary and interest rate policies, the central bank of a modern economy has little choice but to pursue simultaneously both monetary and financial stability. This seems true despite the above-mentioned potential for conflict between these two objectives. This clearly distinguishes the pair financial/monetary stability from the wholly separate choice as to whether or not to pursue an economic growth objective as part of monetary policy on top of the objective of price stability.

Financial integrity. Finally, financial integrity can be defined as the absence of money laundering, insider trading, and illegal capital flows and is commonly regarded as contributing not only to increased global security but also increased monetary and financial stability.90

The normative components of an essentially contested concept fulfil a dual conceptual function. On the one hand they provide important practical policy guidance to those exercising sovereign powers. On the other hand they constitute a benchmark ‘according to which political situations should be evaluated’.91 Sarooshi has taken this argument one step further noting very convincingly that:

The incorporation of these values as an integral part of the concept of sovereignty allows the argument to be made that the exercise of public powers of government can only be considered an exercise of sovereign powers when this is in accord with sovereign values, otherwise the exercise of public powers is something entirely distinct from the exercise of sovereign powers and can even be considered as a violation of sovereignty.92

The above statement might be puzzling at first sight, but is perfectly coherent if one admits that monetary sovereignty is not a purely positive concept, ie a descriptive catalogue of regulatory powers in the realm of money and finance, but that it incorporates also constantly evolving values that constitute a benchmark for the legitimacy of both regulatory action and inaction. Based on the well-established view in contemporary international law that peoples are the ultimate holders of sovereignty and not those in power,93 any policy or regulatory action that consistently disregards the constituent values of monetary sovereignty would have (p.29) to be considered a violation of that same monetary sovereignty. In the words of Michael Reisman:

In modern international law, sovereignty can be violated as effectively and ruthlessly by an indigenous as by an outside force, in much the same way that the wealth and natural resources of a country can be spoliated as thoroughly and efficiently by a native as by a foreigner.94

Reisman’s observations regarding the locus of sovereignty and its violation by domestic actors, although made in the context of human rights violations by domestic actors and not at all with respect to monetary sovereignty, appear to be generally applicable across the whole body of contemporary international law. Admitting that the maintenance of the integrity of the financial system and the promotion of global financial and monetary stability figure among the values incorporated in a contemporary concept of monetary sovereignty thus has major implications for assessing what constitutes a proper exercise of monetary sovereignty. Under this new perspective, those exercising sovereign powers in the realm of money would have to do so in a way that promotes global monetary and financial stability and that ensures the integrity of the financial system. If a state were continuously to fail to orient its policies towards the promotion of these values, that state would effectively be violating the monetary sovereignty of its own people, thereby ultimately eroding the legitimacy of its very own governmental actions. Due to the fact that states are not unitary actors the same reasoning would apply to any entity exercising relevant sovereign powers following conferrals of powers within a given state (eg conferrals to national ministries or specialized agencies or to an independent central bank) or on the international level (eg conferrals to the IMF or to the organs of a monetary union).95

Contrasted with the classical understanding of monetary sovereignty as a purely positive concept, implying independence from external interference in the management of a state’s monetary and financial affairs, this constitutes a huge paradigm shift. Under the contemporary understanding of monetary sovereignty as analysed in this chapter, it incorporates and expresses values, such as, notably, the maintenance of financial integrity and the promotion of monetary and financial stability, of accountability and transparency. These values form a bundle of interrelated normative goals the precise contents of which constantly adjust to changes in the economic framework.

A detailed analysis of how and to what extent the constituent values of contemporary monetary sovereignty actually fulfil their above-mentioned dual function (ie to provide policy guidance and to serve as a legitimacy benchmark) cannot be achieved in an abstract manner as part of this opening chapter. However, such an assessment will be part of the substantial analysis of the contemporary exercise of (p.30) key sovereign powers in the realm of money undertaken in the remaining chapters of this monograph.

In order to avoid the slightest misunderstanding it seems important to underline that the constituent values of monetary sovereignty as an essentially contested concept are obviously not normative in the sense that they establish firmly binding legal rules the non-observance of which constitutes ipso facto a breach of law, potentially even entailing international legal responsibility for the state concerned. They are normative in the sense that those exercising sovereign powers in the realm of money (notably national governments, central banks, and international institutions like the IMF or hybrid bodies like the Financial Stability Board (FSB)96) cannot afford to persistently ignore these values if they do not want to provoke the erosion of the effectiveness, the authority and, ultimately, the legitimacy of their decisions and actions in the long run. It is precisely this impact on policy design, and on the related evolution of the law in the realm of money and finance, that is the main expression of the normative nature of essential components of the contemporary concept of monetary sovereignty as analysed by this study. The practical relevance of these fundamental dynamics will be examined in the following chapters.

The extent to which different societies have different ideas about the core values incorporated in, and expressed by, contemporary monetary sovereignty and, in particular, the extent to which they have differing convictions on how to achieve these normative goals, remains of course a constant problem.97 Whereas ensuring the integrity of the financial system, ie avoiding illegal abuse of the financial system, can no doubt be regarded as a value that is shared worldwide, based on its intrinsic link to the rule of law, maintaining monetary stability and promoting global financial stability might be more problematic normative objectives. However, although those exercising sovereign powers in monetary and financial matters may indeed have differing ideas and economic beliefs about how to best achieve monetary and financial stability,98 there seems to be broad agreement that certain policies are clearly counterproductive, like for example imposing insufficient minimum capital ratios for banks. In addition, most states probably agree that the exercise of sovereign powers in monetary and financial matters should be such as not to put global monetary and financial stability at risk. The earlier mentioned Article IV of the IMF Agreement can certainly be read in support of this view, in (p.31) particular in light of the almost universal membership of the IMF with currently 188 members.99 It states in relevant part:

Recognizing that the essential purpose of the international monetary system is to provide a framework that facilitates the exchange of goods, services, and capital among countries, and that sustains sound economic growth, and that a principal objective is the continuing development of the orderly underlying conditions that are necessary for financial and economic stability, each member undertakes to collaborate with the Fund and other members.

At a time when national economies are ever more interdependent and when financial markets are integrated as never before, the responsible exercise of sovereign powers in the realm of money and finance increasingly requires close cooperation among states. This takes us directly into the final section of this opening chapter. Under the contemporary concept of monetary sovereignty, as examined in this monograph, such cooperation under evolving economic constraints does not amount to ringing the death knell for the concept of monetary sovereignty. Instead, it may be more appropriate to regard such a joint exercise of monetary sovereignty as reflecting a special form of cooperative sovereignty. As noted earlier, the succinct revision of the concept of monetary sovereignty undertaken in this opening chapter sketches out the general conceptual framework. Specific substantial questions, most notably the question whether the increasing regionalization of monetary sovereignty in the context of economic and monetary unions constitutes the surrender of monetary sovereignty or an effective exercise of the latter, will be analysed in subsequent chapters.100

B. Regulating an increasingly interdependent global economy: contemporary monetary sovereignty as cooperative sovereignty

As noted above, in the light of the increasing integration of financial markets and the interdependence of ‘national’ economies, the effective promotion of global monetary and financial stability requires cooperation among those exercising sovereign powers in the realm of money and finance. Again, Besson’s findings with respect to general state sovereignty are applicable to the more specific case of monetary sovereignty:

[G]radually the exercise of [monetary] sovereignty has turned from an individual exercise into a cooperative enterprise…This form of sovereignty triggers duties of cooperation on the part of the entities which cannot ensure the protection of all the values they should protect, as much as on the part of the entities which can help the former to protect those values they (p.32) share. They should all be seen as working towards the same end: the realization of their shared sovereign values and principles.101

The contemporary concept of monetary sovereignty as analysed in this chapter does not call for the introduction of binding international law as part of a globally harmonized legal framework for the exercise of all formerly exclusive state competences in the realm of money (understood in a wider sense). As explained below, the above-mentioned duty to cooperate in the promotion of the constituent values of contemporary monetary sovereignty, notably the promotion of global monetary and financial stability, is being strictly framed by the principle of subsidiarity, the observance of which has been convincingly analysed in the literature as being an integral part of the correct application of the concept of sovereignty itself.102 As further elaborated by Besson, ‘[a]s a concept of power distribution…the principle of subsidiarity implies a test of efficiency in power allocation. In each case, the sovereign authority will be that authority which can realize the objective in the most efficient way’.103

Hence, in conformity with the principle of subsidiarity, transferring certain sovereign powers to higher levels of governance increasingly distant from the people as the true holder of sovereignty would be an appropriate choice only to the extent that lower levels of governance cannot effectively promote the values incorporated in contemporary monetary sovereignty as analysed in this chapter. If properly applied to this contemporary concept of monetary sovereignty as essentially cooperative sovereignty, respecting the principle of subsidiarity would thus help to ensure that the regulatory decisions that are part of the exercise of monetary sovereignty are taken no further away than necessary from the people to whom those in power are ultimately responsible. It should be added that, in practice, this type of responsibility does not always imply that those exercising sovereign powers in the realm of money and finance can be held effectively accountable, by the people as the true sovereign, for the quality of their respective decisions. Whereas this is obviously the case with respect to decisions taken by international organizations, the independence of central banks raises similar concerns on the national level. Hence the increasing importance of transparency and accountability in the exercise of contemporary monetary sovereignty as noted below. Depending on the nature of the precise task at issue and the existing economic circumstances, the appropriate level of governance for the exercise of a given sovereign power in the realm of money and finance could be a multilateral international organization like (p.33) the IMF, an economic and monetary union or one of its organs on the regional level, a yet to be created institution, or merely the nation state or any of its sub-entities.104

As far as its role in the broader conceptual framework set out in this chapter is concerned, subsidiarity as an important framing element of cooperative monetary sovereignty ensures that the conceptual continuity between contemporary monetary sovereignty and classical monetary sovereignty, as well as the conceptual link between monetary sovereignty and general domestic sovereignty, is preserved. As elaborated in this chapter, the concept of monetary sovereignty has significantly evolved over time and will continue to do so in the future under evolving economic and political circumstances. However, the continued relevance of the concept’s origins places the state as the supreme monetary authority in the very centre. This is consistent not only with the still dominant State theory of money, but also with the Societary theory of money as refined and understood by Nussbaum and as adhered to in this study.105 As noted earlier, in order to be able effectively to promote their shared sovereign values in the realm of money (as understood in a wider sense), states are increasingly compelled by contemporary economic constraints to cooperate in the exercise of what were formerly exclusive, ‘national’, state competences. As will be analysed in detail in the following chapters of this monograph, this joint exercise of monetary sovereignty leads to the gain of a joint margin of manoeuvre for the participating states; a margin of manoeuvre that the same states would have lost under the impact of contemporary constraints had they insisted on continuing to exercise their sovereign powers individually. As explained above, the principle of subsidiarity helps to ensure that states renounce an isolated exercise of sovereign powers in the realm of money and finance only to the extent necessary for the effective promotion of the constituent values of contemporary monetary sovereignty.

Finally, with international cooperation in monetary and financial matters becoming more and more an economic necessity, it is important that the exercise of contemporary monetary sovereignty as cooperative sovereignty satisfies high standards of transparency and accountability. This seems particularly crucial in so far as such international cooperation involves conferrals of sovereign powers to international organizations or to the organs of a monetary union, due both to the increasing complexity that results from the related increase of the number of players involved and to the fact that such conferrals move the locus of decision-making further away from national peoples as the true holders of sovereignty.106

However, as has been convincingly pointed out by Robert Keohane and Joseph Nye, ‘accountability is sometimes treated as a good per se, but it is an instrumental (p.34) value, subject to being subordinated as well as traded off against other values’.107 The political choice, increasingly widespread in developed economies, of raising the effectiveness of monetary policy through granting central banks formal independence, thereby isolating them from direct political influence,108 is a clear reflection of precisely this trade-off.109 Central bank independence, coming at the price of reduced accountability in a conventional sense, serves to isolate the conduct of monetary policy from political pressure driven by short-term interests, thereby increasing the effectiveness with which central banks can promote long-term goals such as monetary and financial stability as two of the key values of contemporary monetary sovereignty, as analysed in this chapter.

Indeed, as rightly pointed out by Kal Raustiala, if the legitimacy of an economic institution or body is at least to some degree grounded in the effectiveness with which it works successfully towards the promotion of sovereign values, a given institution may be regarded as gaining at least some degree of legitimacy, ceteris paribus, from the simple fact that its decisions and actions are instrumentally useful, even though it lacks traditional mechanisms of accountability.110 The fundamental question of whether international institutions lacking a formal multilateral mandate and traditional mechanisms of accountability, such as, notably, the G-20 and the FSB, may gain at least some legitimacy through working effectively towards the promotion of commonly shared values will be addressed in due detail towards the end of this monograph.111

On a final note, it is interesting to observe that the growing focus on the issues of transparency and accountability in the contemporary exercise of sovereign powers in the realm of money and finance is closely related to phenomena analysed by a rather young scholarly field: global administrative law. Research in the field of global administrative law has been initiated by Benedict Kingsbury and others in response to a perceived ‘democracy deficit’ in international law-making.112 In the context of the myriad of global regulatory initiatives launched by all sorts of ad-hoc committees and informal gatherings of policymakers in order to restructure the international financial architecture in the wake of the Global Financial Crisis this concern is certainly more acute than ever.113

(p.35) Global administrative law can be defined as covering:

the structures, procedures and normative standards for regulatory decision-making…that are applicable to formal intergovernmental regulatory bodies; to informal intergovernmental regulatory networks, to regulatory decisions of national governments where these are part of or constrained by an international intergovernmental regime; and to hybrid public-private or private transnational bodies.114

Analysing the techniques by which different states and monetary unions, the IMF, the G-20, the FSB and various international financial standard-setting bodies ensure that their decisions and proceedings are sufficiently transparent lies far beyond the scope of this chapter. The same is true for examining how the various international institutions and bodies in the field, many of a temporary and ad-hoc nature, remain accountable to the public and how they address existing legitimacy concerns arising from a perceived democracy-deficit and insufficiencies of their respective mandates. Wherever relevant, the following chapters of this monograph will address these issues in more detail.

Conclusion

Under its contemporary definition as elaborated in this chapter, the concept of monetary sovereignty can no longer be used by states (or by any other entity exercising sovereign powers in monetary and financial matters upon conferral) as an excuse for not effectively promoting the sovereign values in the realm of money and finance such as, notably, the promotion of global monetary and financial stability and the maintenance of financial integrity.

Based on the inherently dual nature of sovereignty as a dynamic concept with not only positive but also constantly evolving normative components, the concept of monetary sovereignty cannot, by its very nature, become eroded under the impact of various economic and legal constraints. However, there is no denying that such contemporary constraints play a major role in defining which steps need to be taken in order to promote global monetary and financial stability and the other core values incorporated in, and expressed by, contemporary monetary sovereignty. As analysed in this chapter, the concept of monetary sovereignty is able to adapt to a constantly changing economic environment, and thereby in turn helps to define what constitutes a responsible exercise of the sovereign powers in the realm of money (as understood in a wider sense).

There is indeed little doubt that most, if not all, daily questions relating to specific rights and obligations of states, international organizations, and private persons can be asked and resolved effectively without having recourse to the (p.36) concept of monetary sovereignty.115 The conceptual revision and fundamental update provided in this chapter and substantiated throughout the subsequent chapters of this monograph do not change this realistic observation. This study does not deny that reflections on the underlying nature of the concept of monetary sovereignty serve above all as a stimulating framework of enquiry and also as a convenient vehicle for debates on specific rights and obligations relating to the contemporary exercise of the formally exclusively national sovereign powers in the realm of money and finance. Many of the insights thus obtained, and this is certainly also true for the subsequent chapters of this monograph, could indeed have been obtained without making the slightest reference to the concept of monetary sovereignty.

Yet it would be a mistake to believe that the above observations turn the concept of monetary sovereignty and its evolution as analysed herein into a subject that lawyers have no need ever to deal with.116 To the extent that we are interested not only in what the law is today, but also to gain a better understanding of the driving and shaping forces behind the evolution of international law in the realm of money, monetary sovereignty remains arguably a timeless concept at the intersection of law, economics, and politics. Let us therefore embark on the next chapter, which analyses the evolving nature of international monetary law by looking into the increasing hybridization of this increasingly complex body of law.

Notes:

(1) A condensed version of this opening chapter, including also elements of Chapter 4, Section III.C, of this monograph has recently been published as an article: see Claus D Zimmermann, ‘The Concept of Monetary Sovereignty Revisited’ (2013) 24(3) EJIL 797.

(2) See, eg, Elizabeth A Martin and Jonathan Law (eds), Oxford Dictionary of Law (6th edn OUP, Oxford 2006).

(3) Island of Palmas Case (Netherlands v USA) (1928), 2 UNRIAA 829. For a thought-provoking analysis of the terms used by Huber in the phrase quoted above, discussing what sovereignty signifies and what independence is, see Vaughan Lowe, ‘Sovereignty and International Economic Law’ in Wenhua Shan, Penelope Simons, and Dalvinder Singh (eds), Redefining Sovereignty in International Economic Law (Hart Publishing, Oxford 2008) 77.

(4) See the various references provided in the general introduction to this monograph, notably in nn 1921.

(5) John Jackson, ‘Sovereignty Modern: A New Approach to an Outdated Concept’ (2003) 97 AJIL 782, 790.

(6) For detail on the view that debates over sovereignty constitute a mere vehicle for more specific, and truly legal, debates over rights and duties of states, see Lowe (n 3) 84. For comments on Lowe’s position, see the conclusion to this opening chapter below.

(7) Latin for ‘law arises out of fact’.

(8) For detailed presentations of the historical and doctrinal origins of monetary sovereignty and its relationship to the broader concept of sovereignty, see, eg, Dominique Carreau, Souveraineté et Coopération Monétaire Internationale (Cujas, Paris 1971) 35–41 and Rosa M Lastra, Legal Foundations of International Monetary Stability (OUP, Oxford 2006) 3–21.

(9) See, eg, Carreau (n 8) 37–8, Lastra (n 8) 6–7.

(10) Jean Bodin, Les Six Livres de la République (1576) I, chapter 11, 213 (quoted in Arthur Nussbaum, Money in the Law—National and International (The Foundation Press, New York 1950) 34).

(11) See Robert Mundell, ‘Money and the Sovereignty of the State’ (1997, Paper for the International Economic Association Conference in Trento) 14 <http://www-ceel.economia.unitn.it/events/monetary/mundell14.pdf> accessed 1 July 2013.

(12) François Grimaudet, Remonstrances aux Etats d’Angers (1560) (originally delivered in French as speech in the Provincial Assembly of Angers on 14 October 1560) (quoted in William Maude (trs), The Fluctuations of Gold (by Alexander von Humboldt)—The Law of Payment (by François Grimaudet), Burt Franklin: Research and Source Works Series 722 (ed) (Lenox Hill Publishers, New York 1900, reprinted 1971) part 2 on The Law of Payment iv).

(13) François Grimaudet, The Law of Payment in Maude (trs) (n 12) part 2 on The Law of Payment 11.

(14) The principle of nominalism is commonly defined as follows:

A debt expressed in the currency of another country involves an obligation to pay the nominal amount of the debt in whatever is the legal tender at the time of payment according to the law of the country in whose currency the debt is expressed (lex monetae), irrespective of any fluctuations which may have occurred in the value of that currency in terms of sterling or any other currency, of gold, or of any commodities between the time when the debt was incurred and the time of payment. (Albert V Dicey and John HC Morris, Dicey and Morris on the Conflict of Laws (edited by Lawrence Collins et al) (13th edn Sweet & Maxwell, London 2001) Rule 206).

(15) See Carreau (n 8) 38 and Nussbaum (n 10) 177.

(16) For detail, see Carreau (n 8) 38.

(17) Carreau (n 8) 39.

(18) Latin for ‘right and property’.

(19) Carreau (n 8) 36.

(20) Carreau (n 8) 39–40.

(21) See François Gény, Quelques observations sur le rôle et les pouvoirs de l’Etat en matière de monnaie et de papier-monnaie (Mélanges Hauriou, Paris 1929) 406.

(22) Gény (n 21) 406.

(23) Carreau (n 8) 40–1.

(24) For detail on the economic concept of money, see, eg, Frederic S Mishkin, The Economics of Money, Banking, and Financial Markets (Business School 2nd edn Addison Wesley, Boston 2009); John Smithin (ed), What is Money? (Routledge, London 2000); and James Tobin, ‘money’ in Steven N Durlauf and Lawrence E Blume (eds), The New Palgrave Dictionary of Economics (2nd edn Palgrave Macmillan, 2008), online edn <http://www.dictionaryofeconomics.com/article?id=pde2008_M000217> accessed 1 July 2013.

(25) John Black, eg, describes this dilemma as follows:

[W]hile notes and coins are legal tender [ie forms of money that creditors are obliged, by law, to accept in settlement of a debt] and must be included in any definition [of money supply], and bank deposits repayable on demand are unlikely to be excluded, there are various types of deposit in non-bank financial intermediaries such as building societies, and various forms of highly liquid security, which can be included or excluded in various ways. Even unused postage stamps and uncashed postal orders could be used as money, though they are not included in any current definition.

(John Black, Oxford Dictionary of Economics (2nd edn OUP, Oxford 2003) 266, 305–6).

(26) Most major central banks no longer rely on official M0 aggregates, although they continue to publish the amount of notes and coins in circulation. The European Central Bank (ECB), eg, relies on the following three monetary aggregates: Narrow Money M1 (defined as the sum of currency in circulation and overnight deposits), Intermediate Money M2 (M1 plus deposits with an agreed maturity of up to two years and deposits redeemable at a period of notice of up to three months) and Broad Money M3 (M2 plus repurchase agreements and money market fund shares/units and debt securities of up to two years) (<http://www.ecb.int/stats/money/aggregates/aggr/html/hist.en.html>). The United States (US) Federal Reserve System (Fed), having discontinued publication of the M3 monetary aggregate on 23 March 2006, publishes weekly figures for M1 and M2 (<http://www.federalreserve.gov/releases/h6>). Finally, in the United Kingdom (UK), the Bank of England, following implementation of the May 2006 Money Market Reform (<http://www.bankofengland.co.uk/mfsd/iadb/notesiadb/M0.htm>) publishes figures for notes and coins and reserve balances as well as a broad money aggregate M4 (<http://www.bankofengland.co.uk/mfsd/iadb/notesiadb/M4.htm>) that measures the money supply in the UK. In addition, the Bank of England publishes a UK estimate of the important monetary aggregate M3 as defined by the ECB (<http://www.bankofengland.co.uk/mfsd/iadb/notesIADB/m3.htm>) (all accessed 1 July 2013).

(27) According to FA Mann, the quality of money is to be attributed to all chattels that are:

  1. ((a)) issued under the authority of the law in force within the State of issue;

  2. ((b)) under the terms of that law, denominated by reference to a unit of account; and

  3. ((c)) under the terms of that law, are to serve as the universal means of exchange in the State of issue.

(Charles Proctor, Mann on the Legal Aspect of Money (7th edn OUP, Oxford 2012) 15 (citing FA Mann, The Legal Aspect of Money (5th edn OUP, Oxford 1991, first published in 1938) 8)).

(28) On this point, see also Proctor (n 27) 15.

(29) Proctor (n 27) 16 (referring to Georg Friedrich Knapp, Staatliche Theorie des Geldes (4th edn Duncker & Humblot, Munich 1923), translated by Lucas and Bonar, State Theory of Money (abridged edn Macmillan, London 1924)).

(30) For these and additional references to modern constitutions indirectly recognizing the State theory of money, see Lastra (n 8) 18, fn 52.

(31) For detail, see Geneviève Burdeau, ‘L’exercice des Compétences Monétaires par les Etats’ (1988) 212 Recueil des Cours 211, 234–6.

(32) On this point, see Dominique Carreau, ‘Le système monétaire international privé (UEM et euromarchés)’ (1998) 274 Recueil des Cours 367.

(33) Nussbaum (n 10) 8, footnotes omitted.

(34) Local or regional currencies, often also referred to as community currencies, are currencies that are not legal tender and are intended to be used in parallel to the respective national currency and which trade only in a rather limited geographical area and usually not across borders. At present, close to 3,000 different local or regional currencies are known to exist worldwide, many of them operating as scrips or vouchers that can be exchanged into national currency. From an economic perspective, local or regional currencies tend to circulate more quickly than regular currency since they usually operate on the basis of a demurrage-charge, ie their nominal value decreases over time making it attractive to spend the money instead of holding on to it. The underlying idea of contemporary local or regional currencies is to foster local and regional identities and to encourage people to buy locally. Well known current examples include the Brixton Pound and the Stroud Pound in the UK as well as the Chiemgauer in Germany. To find what were arguably more interesting examples of local or regional currencies one has to go back in history to free economy experiments that were undertaken in Germany and Austria by members of the so-called Physiocratic League, founded by Silvio Gesell, during the Great Depression. Thus, a privately organized currency agency issued a demurrage-charged currency, the Wära, which circulated in parallel to the Reichsmark. Among the most notable experiments thus undertaken figures the Wära experiment of Schwanenkirchen (a village that is now part of Hengersberg in Lower Bavaria where this author grew up). Initiated in 1929 by the new owner of the originally bankrupt coal mine in Schwanenkirchen, who now paid salaries in a mix of Wära (two-thirds) and Reichsmark (one-third), the fact that each Wära banknote lost one per cent of its nominal value each month played a crucial role in then deflation-struck Germany in encouraging the local population to actually spend their wages; Wära banknotes were widely accepted by local businesses. On 30 October 1931, the finance ministry of the German Reich forbade the Schwanenkirchen Wära experiment, which until then had led to modest economic prosperity in the area against all national and global trends. For a more detailed account of the Schwanenkirchen Wära experiment, see Franz Fischer, ‘WÄRA: Das Schwundgeld von Schwanenkirchen’, <http://www.hengersberg.de/geschichte/waera.html> accessed 1 July 2013.

(35) The term virtual or digital currencies refers to various forms of electronic money issued not by government-endorsed central banks but by private entities. Virtual or digital currencies serve as an alternative currency among their users. Many of them have so far been rather short-lived and have not seen widespread usage. The first notable such currency was the so-called e-gold, which was established in 1996 but is no longer active. Interestingly, e-gold was based on a bimetallist standard, ie a promise that each of its units could be exchanged into a set amount of gold or silver bullion. A more recent, and still active, digital currency that has attracted much attention is bitcoin. Established in 2009 as an online commodity, based on an open-source, peer-to-peer encryption protocol which enables its users to ‘mine’ new bitcoins by adding unique programming codes to a decentralized log. As of early April 2013, about 5,000 merchants worldwide accepted bitcoin-denominated transactions. For more detailed information on the design and operation of bitcoin, see its official website: <http://bitcoin.org/en> accessed 1 July 2013. The price of a single bitcoin suddenly rose in early April 2013, peaking at 266 US dollars (USD) on 10 April 2013. However, only three days later its value had dramatically slumped to USD 54, showing that their overall little volume exposes bitcoins to significant speculative risk. See, eg, Stephen Foley, ‘Bitcoin fans put brave face on price fall’ Financial Times (12 April 2013) <http://www.ft.com/cms/s/0/4118322c-a389-11e2-ac00-00144feabdc0.html> accessed 1 July 2013.

(36) This Institutional theory of money was first proposed by Sáinz de Vicuña in a paper entitled ‘The Concept of Money in the XXIst Century’ presented at a meeting of the Committee on International Monetary Law of the International Law Association (MOCOMILA) in Tokyo on 1 April 2004. A brief discussion of that paper and the Institutional theory of money outlined therein can be found in Lastra (n 8) 21, n 34. Sáinz de Vicuña has more recently provided an updated analysis of his Institutional theory of money in Antonio Sáinz de Vicuña, ‘An Institutional Theory of Money’ in Mario Giovanoli and Diego Devos (eds), International Monetary and Financial Law: The Global Crisis (OUP, Oxford 2010) 517. For a nuanced discussion of that article, see Proctor (n 27) 25–30.

(37) For detail, see Sáinz de Vicuña, ‘An Institutional Theory of Money’ (n 36) 521–3.

(38) Sáinz de Vicuña, ‘An Institutional Theory of Money’ (n 36) 519.

(39) See, eg, Proctor (n 27) 24.

(40) As noted earlier, a commonly accepted definition, broad or narrow, of the sovereign powers in the realm of money does not exist. See the detailed list of regulatory powers presented in the general introduction to this monograph for the broad approach adopted in the present study.

(41) For a succinct presentation of relevant constraints arising from customary international law, see Proctor (n 27) 526–48.

(42) IMF Article IV:1 contains a code of conduct for IMF members. Most notably, IMF Article IV:1(iii) obliges IMF members to avoid manipulating exchange rates or the international monetary system in order to prevent effective balance of payments adjustment or to gain an unfair competitive advantage over other members. For a thorough assessment of the IMF’s code of conduct in IMF Article IV:1 in light of contemporary challenges to systemic stability, providing a detailed analysis of the complex phenomenon of exchange rate misalignment under international monetary and trade law, see Chapter 3 of this monograph.

(43) IMF Article VIII sets forth various general obligations of IMF members. In particular, according to Article VIII:2(a), no IMF member shall impose restrictions on the making of payments and transfers for current international transactions without approval of the Fund. For related developments, see Chapter 2, Section I.A, of this monograph.

(44) Lastra (n 8) 26–32.

(45) The Second Amendment of the Fund’s Articles entered into force on 1 April 1978, adjusting the law to economic reality, thereby confirming once again: ex post facto ius oritur…For a detailed analysis of the international legal framework for the conduct of exchange rate policies, see Chapter 3 of this monograph.

(46) For a detailed analysis of the regionalization of monetary sovereignty in various parts of the world, see Chapter 4 of this monograph. Section III.C of that chapter provides a detailed answer to the fundamental question of whether the increasing regionalization of monetary sovereignty amounts to an erosion of monetary sovereignty or, on the contrary, to an effective exercise of the latter.

(47) Carreau rightly makes this observation regarding the liberalization of the capital and current accounts. See Dominique Carreau, ‘La souveraineté monétaire de l’Etat à la fin du XXe siècle: mythe ou réalité?’ in Charles Leben, Eric Loquin, and Mahmoud Salem (eds), Souveraineté étatique et marchés internationaux à la fin du 20ème siècle: Mélanges en l’honneur de Philippe Kahn (Litec, Paris 2000) 491, 499.

(48) Again, the existing literature has provided highly insightful analyses of the related legal issues that lie beyond the scope of this chapter. See notably Carreau (n 32) and Jean-Marc Sorel, ‘Les Etats face aux marchés financiers’ in Leben, Loquin, and Salem (eds) (n 47) 507.

(49) In the eurozone, eg, notes and coins in circulation as of May 2013 accounted for merely 8.9 per cent of the total monetary stock M3 (own calculation based on figures published by the ECB, available at <http://sdw.ecb.europa.eu/reports.do?node=100000141> accessed 1 July 2013).

(50) The term ‘eurocurrencies’ is used consistently throughout this monograph to designate what had originally become known as ‘eurodollars’. Eurocurrencies are deposits of a specific currency outside the territory of the issuing state. A neutral designation such as ‘xenocurrencies’ (from the Greek ‘xeno’ for foreign) might have been preferable, but the prefix ‘euro’ is now firmly established in financial practice and the related literature. In summary, the phenomenon of eurocurrencies deprives the issuing state of some factual control over money creation since this phenomenon limits the state’s capacity to control credit as an important aspect of money supply. For detail on the legal nature of eurocurrencies, their historical background, and related phenomena, see the analysis provided in Chapter 2, Part III, of this monograph.

(51) As explained in Section I.B above, whereas for economists scriptural money (under its multiple appearances) is the main part of the monetary stock in a given economy, legal theory has found it much more difficult to face reality and to admit that the state has factually lost control over essential parts of money creation. According to the mainstream State theory of money scriptural money does not amount to money, but it does so according to the Societary theory of money adhered to in this study.

(52) As formulated by Carré de Malberg in the French original:

[D]ans son sens originaire, la souveraineté désigne le caractère suprême de la puissance étatique. Dans une seconde acception, elle désigne l’ensemble des pouvoirs compris dans la puissance d’Etat. La souveraineté, en tant que puissance suprême, demeure l’apanage de l’Etat; la souveraineté, en tant que l’ensemble des pouvoirs compris dans la puissance de l’Etat, peut en revanche être partagée.

(Raymond Carré de Malberg, Contribution à la théorie de l’Etat (Sirey, Paris 1920) 79).

(53) Case of the SS ‘Wimbledon’ (United Kingdom, France, Italy, Japan v Germany), Judgment of 17 August 1923, PCIJ Rep Series A No 1, 25.

(54) For a notable exception, taking into account the dual nature of the concept of monetary sovereignty as a both positive and normative concept, see Francesco Martucci, ‘De l’Union Economique et Monétaire à l’Ordre de la Politique Economique et Monétaire’ (2009) 21(3) European Review of Public Law 1097.

(55) Robert Howse, ‘Sovereignty, Lost and Found’ in Shan, Simons, and Singh (eds) (n 3) 61, 75.

(56) Walter Gallie was the first to develop the idea of essentially contested concepts in Walter B Gallie, ‘Essentially Contested Concepts’ (1956) LVI Proceedings of the Aristotelian Society 167. Several authors further developed and applied the concept, notably John N Gray, ‘On the Contestability of Social and Political Concepts’ (1977) 5(3) Political Theory 331 and Jeremy Waldron, ‘Is the Rule of Law an Essentially Contested Concept (in Florida)?’ (2002) 21(2) Law and Philosophy 137. Whereas Gallie, in his original promulgation of the idea, speaks about essentially ‘contested’ (and not ‘contestable’) concepts, subsequent studies (see notably Besson (n 57) below) have used both terms synonymously.

(57) Samantha Besson, ‘Sovereignty in Conflict’ (2004) 8(15) European Integration online Papers, <http://eiop.or.at/eiop/pdf/2004-015.pdf> accessed 1 July 2013, 7–16. Whereas Besson, in her analysis of sovereignty, appears to have been the first author to explicitly rely on the framework of ‘essentially contested concepts’ as developed by Gallie, other authors had previously pointed to the nature of sovereignty as an increasingly contested concept, arguing rightly that sovereignty was characterized by both changing and stable elements and that the appropriate debate was not one of continuity versus change. See, notably, Georg Sørensen, ‘Sovereignty: Change and Continuity in a Fundamental Institution’ (1999) XLVII Political Studies 590, 604.

(58) Dan Sarooshi, ‘The Essentially Contested Nature of the Concept of Sovereignty: Implications for the Exercise by International Organizations of Delegated Powers of Government’ (2004) 25 Michigan Journal of International Law 1107, 1108–20; Dan Sarooshi, International Organizations and their Exercise of Sovereign Powers (OUP, Oxford 2005) 3–11.

(59) Besson (n 57) 6–7, original emphasis.

(60) See Section I.A of this chapter.

(61) Besson (n 57) 5 (quoting, in relevant part, Tanja E Aalberts, ‘The Future of Sovereignty in Multilevel Governance Europe—A Constructivist Reading’ (2004) 42 Journal of Common Market Studies 23, 39).

(62) Besson (n 57) 7. It should be noted that the characteristics of essentially contested concepts have been expressed in various ways in the literature. Besson’s convincing focus on three key characteristics is a reformulation of the approach taken in William E Connolly, The Terms of Political Discourse (3rd edn Blackwell, Oxford 1993) 10–12. In his original account of essentially contested concepts, Gallie had relied upon five conditions for expressing the same key ideas (see Gallie (n 56) 171–2). See also Gray (n 56) 332 for an early (1977) summary presentation of Gallie’s ideas as three characteristics.

(63) For a detailed analysis of the regionalization of monetary sovereignty, see Chapter 4 of this monograph.

(64) Besson (n 57) 7. In her argument, Besson convincingly relies on Hans Kelsen’s analysis of the bellum justum theory as advanced in 1942, in the early days of contemporary international law. As put by Kelsen:

The technical inadequacies of general international law do indeed to a certain extent justify the interpretation of the opponents of the bellum justum theory…It is one of the peculiarities of the material which forms the object of the social sciences to be sometimes liable to a double interpretation. Hence, objective science is not able to decide for or against one or the other. It is not a scientific, but a political decision which gives preference to the bellum justum theory. This preference is justified by the fact that only this interpretation conceives of the international order as law.

(Hans Kelsen, Law and Peace in International Relations: The Oliver Wendell Holmes Lectures (HUP, Cambridge MA 1942) 54).

(65) Lowe (n 3) 81 (referring to the seminal study undertaken by JHW Verzijl (JHW Verzijl, International Law in Historical Perspective: General Subjects, vol. 1 (Kluwer Law International, Alphen aan den Rijn 1968) 259)).

(66) Lowe has made this major point with respect to the concept of sovereignty in general (Lowe (n 3) 83).

(67) For a thorough study of the various types of conferrals of sovereign powers by states to international organizations (agency relationships, delegations, and transfers), see Sarooshi, International Organizations (n 58).

(68) As reflected upon by Kofi Annan, then Secretary-General of the United Nations (UN), at the turn of the last century:

We need to adapt our international system better to a world with new actors, new responsibilities, and new possibilities for peace and progress. State sovereignty, in its most basic sense, is being redefined—not least by the forces of globalisation and international cooperation. States are now widely understood to be instruments at the service of their peoples, and not vice versa.

(Kofi Annan, ‘Two concepts of sovereignty’, The Economist (online edn, 16 September 1999) <http://www.economist.com/node/324795> accessed 1 July 2013).

(69) This analysis is in line with what Michel Virally, more than 35 years ago, analysed as follows:

[C]omme tous les concepts juridiques également, [le concept de souveraineté] a une valeur opératoire. Par les valeurs qu’il exprime, par la logique interne qui lui est propre, il présente un dynamisme dont l’orientation effective dépend du système juridique dans lequel il est utilisé. Le débat d’idées sur la souveraineté n’est donc pas sans importance, même s’il a été exagéré, et la doctrine, à l’opposé de ce qu’enseigne un certain positivisme, n’est pas innocente.

(Michel Virally, ‘Une pierre d’angle qui résiste au temps: avatars et pérennité de l’idée de souveraineté’ in R Blackhurst and others (eds), Les relations internationales dans un monde en mutation (Sijthoff, Geneva 1977) 179–80).

(70) Daniel Thürer, ‘The Emergence of Non-Governmental Organizations and Transnational Enterprises in International Law and the Changing Role of the State’ in Rainer Hofmann (ed), Non-State Actors as New Subjects of International Law (Duncker & Humblot, Berlin 1999) 38–9, original emphasis, footnotes omitted. See also Jörg P Müller, ‘Wandel des Souveränitätsbegriffs im Lichte der Grundrechte—dargestellt am Beispiel von Entwicklungen des internationalen Menschenrechtsschutzes auf die schweizerische Rechtsordnung’ in Stephan Breitenmoser, Bernhard Ehrenzeller, and René Rhinow (eds), Fragen des internationalen und nationalen Menschenrechtsschutzes (Helbing & Lichtenhahn, Basel 1997) 45, 61–2.

(71) Sarooshi, International Organizations (n 58) 9.

(72) The term Global Financial Crisis has firmly established itself in public discussions to designate the worst financial and economic crisis since the Great Depression of the 1930s. While the term Great Recession (as compared to the Great Depression) has equally been used in the literature to characterize the state of the world economy in 2007–2009, it fails to account for the fact that throughout this entire period the gross domestic product (GDP) of large parts of the world, mostly African and Asian states, continued to grow, albeit at diminished rates. The ongoing sovereign debt crisis in several advanced European economies, though intrinsically linked to the Global Financial Crisis, may be considered a separate event. For an analysis of the reorganization of the international financial architecture in the wake of the Global Financial Crisis, see Chapter 5 of this monograph.

(73) The definitions of monetary and financial stability presented in the following paragraphs are a condensed version of the more detailed analysis of central bank objectives undertaken as part of the following book contribution: Claus D Zimmermann, ‘Global Benchmark Interest Rates: Conflicting Objectives and Increasing Hybridization’ in Thomas Cottier, Rosa M Lastra, Lucia Satragno, and Christian Tietje (eds), The Rule of Law in Monetary Affairs (CUP, Cambridge forthcoming 2014).

(74) François Gianviti, ‘The Objectives of Central Banks’ in Giovanoli and Devos (eds) (n 36) 449. For a detailed definition and nuanced discussion of monetary stability as key central bank objective, see Lastra (n 8) 34–9.

(75) Gianviti (n 74) 473.

(76) For detail on the economic mechanisms and policy rationale underlying exchange rate misalignment, see Chapter 3, Section I.C, of this monograph.

(77) Gianviti (n 74) 468.

(78) For an insightful analysis of the theory and practice of central banks independence, see Lastra (n 8) 41–61.

(79) Gianviti (n 74) 468–9.

(80) Gianviti (n 74) 472.

(81) Gianviti (n 74) 470.

(82) Gianviti (n 74) 471.

(83) These different approaches explain to a large extent existing discrepancies in the interest rate policies conducted on both sides of the Atlantic. Maybe more importantly, however, they help to understand the continuous struggle between the two largest economies in the EU, Germany and France (whose Banque de France formerly played a major role in stimulating the real economy), regarding the right approach to be pursued by the ECB.

(84) Robin Harding and James Politi, ‘Fed links interest rates to US unemployment’, Financial Times (13 December 2012) <http://www.ft.com/intl/cms/s/0/3713f096-447e-11e2-8fd7-00144feabdc0.html> accessed 1 July 2013.

(85) See Gianviti (n 74) 473.

(86) Definition by the former Chief Economist and Member of the Board of the ECB Otmar Issing: Otmar Issing, ‘Monetary and Financial Stability: Is there a Trade-off?’ (2003) Paper presented at the ECB Conference on ‘Monetary Stability, Financial Stability and the Business Cycle’ held at the Bank for International Settlements (BIS), Basel (28–29 March 2003) <http://www.ecb.int/press/key/date/2003/html/sp030329.en.html> accessed 1 July 2013.

(87) See n 86.

(88) Gianviti (n 74) 481.

(89) Gianviti (n 74) 481.

(90) Whereas financial stability and financial integrity are closely linked concepts, financial integrity is obviously not the only contributing factor to financial stability.

(91) Besson (n 57) 7.

(92) Sarooshi, International Organizations (n 58) 11.

(93) See the analysis provided towards the end of Section II.B above.

(94) W Michael Reisman, ‘Sovereignty and Human Rights in Contemporary International Law’ (1990) 84 AJIL 866, 872.

(95) For a detailed analysis of various related legal challenges, see the following chapters of this monograph.

(96) For detail on the FSB and its role in the reorganized international financial architecture, see Chapter 5, Section II, of this monograph.

(97) Sarooshi has made this point with respect to the exercise of sovereign powers by international organizations. See Sarooshi, International Organizations (n 58) 10.

(98) The differing objectives pursued by central banks in their conduct of monetary policy illustrate this lack of consensus. See the definition of monetary stability provided towards the beginning of the present section. That such a consensus does not exist has further been amply demonstrated, inter alia, by the failure of the so-called ‘Washington Consensus’, rendered infamous in the context of too rigidly applied IMF and World Bank conditionality. For detail on IMF conditionality and the Washington Consensus, see Chapter 2, Section II.A, of this monograph.

(99) See IMF, ‘Republic of South Sudan becomes the IMF’s 188th member’, Press Release No 12/140 (18 April 2012) <http://www.imf.org/external/np/sec/pr/2012/pr12140.htm> accessed 1 July 2013.

(100) See, most notably, Chapter 4 of this monograph which will examine, inter alia, how the idea of cooperative sovereignty plays out in light of the myriad of trials and tribulations faced by the eurozone in the context of the ongoing sovereign debt crisis faced by an increasing number of its member states.

(101) Besson (n 57) 13, emphasis added. See also Daniel Thürer, ‘Modernes Völkerrecht: Ein System im Wandel und Wachstum—Gerechtigkeitsgedanke als Kraft der Veränderungen?’ (2000) Zeitschrift für ausländisches öffentliches Recht und Völkerrecht 557, 592 and Catherine Richmond, ‘Preserving the Identity Crisis: Autonomy, System and Sovereignty in European Law’ (1997) 16 Law and Philosophy 377, 415–17.

(102) Besson (n 57) 13. For a related argument, see Neil MacCormick, Questioning Sovereignty (OUP, Oxford 1999) 135.

(103) Besson (n 57) 12, original emphasis. On the complementarity between the principle of subsidiarity and sovereignty, see also Jörg P Müller, Der politische Mensch—Menschliche Politik (Helbing & Lichtenhahn, Basel 1999) 171. See also Jackson (n 5) 792–4.

(104) For a detailed analysis of several related legal challenges arising in the context of the increasing regionalization of monetary sovereignty, see Chapter 4 of this monograph.

(105) For detail on the various legal theories of money, see Section I.B of the present chapter.

(106) It goes without saying that for states acting individually, mechanisms ensuring transparency and accountability have become increasingly important issues, too, since states are far from being unitary actors: different agencies and ministries exercise relevant elements of the regulatory powers in monetary and financial matters.

(107) Robert O Keohane and Joseph S Nye Jr, ‘Democracy, Accountability, and Global Governance’ (2001) Harvard University John F Kennedy School of Government, Politics Research Group Working Papers on International Relations No 01–4, 5 (quoted and commented on in Kal Raustiala, ‘Rethinking the Sovereignty Debate in International Economic Law’ (2003) 6 JIEL 841, 62).

(108) On the economic rationale for central bank independence, see, for example, Stanley Fischer, ‘Central-Bank Independence Revisited’ (1995) 85(2) The American Economic Review 201; as well as the various references listed therein.

(109) Raustiala (n 107) 862.

(110) Raustiala (n 107) 862.

(111) See, notably, the detailed analysis provided in Chapter 5, Sections I and II, of this monograph.

(112) See, eg, Michael S Barr and Geoffrey P Miller, ‘Global Administrative Law: the View from Basel’ (2006) 17 EJIL 15, 16.

(113) For related substantial comments, see, notably, the analysis provided in Chapter 3, Section III, as well as in Chapter 5 of this monograph.

(114) Barr and Miller (n 112) 16 (in reference to Benedict Kingsbury, Nico Krisch, and Richard B Stuart, ‘The Emergence of Global Administrative Law’ (2005) 68 Law and Contemporary Problems 15).

(115) Lowe was right to make this fundamental point with respect to the concept of sovereignty in general. See Lowe (n 3) 84.

(116) For this slightly provocative, and herein refuted, view, as expressed by Lowe with respect to debates over sovereignty in general, see Lowe (n 3) 84.