We now return to higher grounds, to locate the financial crisis in a larger historical context. The financial crisis should be seen in the context of contests for hegemony in three areas: a contest for continued political and economic dominance in the international monetary system by the United States; a contest for the continued dominance of the financial industry over the real economy; and finally a contest for continuation of intellectual dominance by neo-liberals and market fundamentalists.

Contest for Continuation of U.S. International Monetary Dominance

We have shown the links between the international monetary system and the financial crisis: how current account imbalances are associated with excess savings in some countries and over consumption in others; how capital flows have trumped trade flows after the collapse of the Bretton Woods system leading to exchange rate instability and undermining the independence of monetary policies.

In particular we have argued that the problem of current account imbalances globally has less to do with countries that have current account surpluses and more to do with a country that is able to defy the “normal rules” of the international monetary system. Under the present international monetary system, it is not possible for most countries to register persistent current account deficits, particularly of a large magnitude, over a long period. Sooner or later market forces will force a correction in their current account deficits and the countries have to live within their means. The United States, however, has been able to defy this trend for a long period. Except for a brief period in 1991, it has registered current account deficits since 1985 rising to a peak of 6.5 per cent of its GDP in 2006. This is because the United States issues dollar that is used as the major international currency not only for transactions but also as a store of value.

An issuer of international currency enjoys important privileges (Cohen 2009, p. 3). The first is seigniorage, in simple language, the ability to print money to pay back your liabilities. All central banks have the power of seigniorage. As the dominant international currency, seigniorage confers the ability to the United States to pay back its dollar obligations in U.S. dollar. In effect, it can borrow and repay without limits as long as other countries want to hold the U.S. dollar.