1. See Kindleberger, Charles P., The World in Depression, 1929–1939 (Berkeley: University of California Press, 1973)Google Scholar; Gilpin, Robert G., U.S. Power and the Multinational Corporation: The Political Economy of Direct Foreign Investment (New York: Basic Books, 1975)CrossRefGoogle Scholar; and Krasner, Stephen D., “State Power and the Structure of International Trade,” World Politics 28 (04 1976), pp. 317–47CrossRefGoogle Scholar.

2. Rapkin, David P. and Avery, William P., “U.S. International Economic Policy in a Period of Hegemonic Decline,” in Rapkin, and Avery, , eds., America in a Changing World Political Economy (New York: Longman, 1982), p. 16Google Scholar.

3. Kindleberger, , World in Depression, p. 305Google Scholar.

4. As Russell Hardin argues, solutions to collective action problems vary according to the perspective assumed. Hegemonic stability theory sees the problem from a static perspective; Hardin, and others, suggest that the problem—and the solution—may be seen very differently if a long-term, interactive perspective is assumed. See Hardin, , Collective Action (Baltimore: Johns Hopkins University Press, 1982)Google Scholar.

5. For the general argument that small groups—that is, a group in which a relatively small number of actors “could all benefit if they alone provided the whole group's good”—may successfully cooperate to provide collective goods, see ibid., p. 12. A similar argument applied specifically to the good of international economic stability was made by Duncan J. Snidal and Robert O. Keohane at the panel “Formal Models of Regime Stability,” held at the 1983 Annual Meeting of the American Political Science Association.

6. For a critical analysis, see Keohane, Robert O., “The Theory of Hegemonic Stability and Changes in International Economic Regimes, 1967–1977,” in Holsti, Ole R., Siverson, Randolph M., and George, Alexander L., eds., Change in the International System (Boulder: Westview, 1981), pp. 154–55Google Scholar.

7. See, for example, Robert O. Keohane, “The Demand for International Regimes”; Stephen D. Krasner, “Regimes and the Limits of Realism: Regimes as Autonomous Variables”; Charles Lipson, “The Transformation of Trade: The Sources and Effects of Regime Change”; and Stein, Arthur A., “Coordination and Collaboration: Regimes in an Anarchic World.” All appear in International Organization 36 (Spring 1982)CrossRefGoogle Scholar.

8. Officials granted interviews on the understanding that they would not be quoted without their permission. Where a quotation in the article is not attributed by name, the official was requested but declined to grant permission to be quoted directly.

9. The account was expected to accept roughly $50 billion in deposits. A substitution account with much more ambitious objectives was discussed in the two-year monetary reform negotiations carried out in 1972–74 by the IMF's Committee of Twenty. See International Monetary Reform: Documents of the Committee of Twenty (Washington, D.C.: IMF, 1974), pp. 41–42, 112–38, 162–79Google Scholar. Some see the intellectual origins of the substitution account in Keynes's 1943 proposal for an International Clearing Union. See, for example, Sobol, Dorothy Meadow, “A Substitution Account: Precedents and Issues,” Federal Reserve Bank of New York Quarterly Review 4 (Summer 1979), pp. 40–48Google Scholar.

10. In part as a result of the substitution account discussions, the basket of currencies composing the SDR was reduced to five (the dollar, deutsche mark, French franc, yen, and pound), effective 1 January 1981. See Gold, Joseph, “SDRs, Currencies, and Gold: Fifth Survey of New Legal Developments,” IMF Pamphlet Series no. 36 (Washington, D.C., 1981), pp. 91, 85Google Scholar.

11. U.S., White House, Economic Report of the President, Together with the Annual Report of the Council of Economic Advisers (Washington, D.C.: GPO, 1979), p. 154Google Scholar. For the precise fluctuations in the dollar's value, see Table 1 below.

12. Estimates of reserve asset diversification vary and are susceptible to error given data limitations. Peter Kenen calculates that at the end of 1976, U.S. dollars constituted 86.6% of official foreign-exchange holdings; as of late 1978, the percentage had declined to 82.1. Moreover, Kenen argues, if these statistics are corrected for increases in the holdings of the main reserve centers, the share of the dollar declines from 80% in 1976 to 70% in 1978. See Kenen, , “The Analytics of a Substitution Account,” Reprints in International Finance no. 21 (Princeton: Princeton University, International Finance Section, 12 1981), p. 407Google Scholar.

13. See Golds, , “SDRs, Currencies, and Gold,” p. 3Google Scholar.

14. At the end of 1978, the aggregate value of officially reported international reserves worldwide was approximately $550 billion, of which SDRs were $10 billion. If the substitution account received dollar deposits amounting to $50 billion, as was envisaged, the proportion of SDR denominated assets in international reserves would significantly increase. These figures on reserves are from “Reserve Diversification and the IMF Substitution Account,” World Financial News letter, September 1979, p. 6.

15. Hargreaves, D. K., a Morgan Guaranty Trust Company vice-president and international economist, observed, for example, that “the whole notion that official reserve diversification was the problem that was inflicting instability on the system…was a gross exaggeration of the role of central banks.” Interview, 3 03 1983Google Scholar, attributed by permission.

16. “It is impossible to achieve monetary stability,” commented a German observer, “by the institutional exchange of one asset for another. It can only be achieved by an economic policy which engenders trust and convinces the market that the world's major currency is once again capable of exercising its function as a store of value.” Gehrmann, Dieter, “Substitution Account: No Solution for International Monetary Problems,” Intereconomics (Hamburg) no. 3 (05–06 1980), p. 114Google Scholar.

17. As Richard N. Cooper, under secretary of state for economic affairs in the Carter administration, commented, for example, “the dollar is, for the near future, firmly rooted. While there will be some fringe activities in marks and yen and even the pound—if the British shape up…, none of these currencies is in any position to challenge the dollar in any serious way.” Nor, he adds, would a multicurrency system be inherently unstable; its stability or instability would depend on the behavior of central banks. Interview, 27 May 1983, attributed by permission.

18. Also, in part, as a result of the substitution account effort, the interest rate on SDRs was raised to 100% of the combined market rate, effective 1 May 1981. Gold, , “SDRs, Currencies, and Gold,” p. 86Google Scholar.

19. Interview, 15 February 1983.

20. Interview, 7 April 1983, attributed by permission.

21. Interview, 14 March 1983, attributed by permission. The Council of Economic Advisers also noted that, while the substitution account “did not resolve all the issues raised by the current role of the dollar,” it would “in the near term…establish a mechanism to reshape the trend toward a multicurrency system in a form that did not destabilize exchange markets.” U.S., White House, Economic Report of the President, Together with the Annual Report of the Council of Economic Advisers (Washington, D.C.: GPO, 1980), p. 179Google Scholar.

22. The quoted phrase is from Haberler, Gottfried, “The International Monetary System after Jamaica and Manila,” in Adams, John, ed., The Contemporary International Economy: A Reader (New York: St. Martin's, 1979), p. 218Google Scholar. At the April 1978 Interim Committee meeting in Mexico City, then IMF Managing Director H. Johannes Witteveen initiated discussion of a substitution account. His proposal, however, was designed to secure the agreement of IMF members to a second allocation of SDRs and would have been based on the quotas used to distribute SDRs. When an SDR allocation was approved, Witteveen's suggested substitution account was dropped.

23. IMF Survey, 19 March 1979, p. 81.

24. IMF Survey, 15 October 1979, p. 315.

25. Interview, 15 February 1983.

26. Krasner, Stephen D., “American Policy and Global Economic Stability,” in Rapkin, and Avery, , America in a Changing World, p. 43Google Scholar.

27. Kindleberger, , World in Depression, p. 24Google Scholar. See also Kindleberger's discussion of the role of domestic politics in setting British and French exchange rates in 1925 and 1926 (chap. 2), and the role of political parties in setting tariff levels (p. 134).

28. Gilpin, Robert G., War and Change in World Politics (Cambridge: Cambridge University Press, 1981), pp. 21, 55CrossRefGoogle Scholar.

29. See, for example, Ruggie, John Gerard, “International Regimes, Transactions, and Change: Embedded Liberalism in the Postwar Economic Order,” International Organization 36 (Spring 1982), pp. 379–415CrossRefGoogle Scholar.

30. The 1929 depression, according to Kindleberger, “was so wide, so deep and so long because the international economic system was rendered unstable by British inability and United States unwillingness to assume responsibility for stabilizing it in three particulars: (a) maintaining a relatively open market for distress goods; (b) providing counter-cyclical long-term lending; and (c) discounting in crisis” (World in Depression, pp. 291–92).

31. Stephen Krasner argues, for example, that in international relations the “political power necessary to establish a system or regime…can only come from a state or group of states. Historically, a stable international economic regime has been associated with a hegemonic maker of the system.” Krasner, , “United States Commercial and Monetary Policy: Unravelling the Paradox of External Strength and Internal Weakness,” in Katzenstein, Peter J., ed., Between Power and Plenty: Foreign Economic Policies of Advanced Industrialized States (Madison: University of Wisconsin Press, 1978), p. 52Google Scholar. Gilpin states that in an interdependent world economy, “there is always the danger that a nation may pursue certain short-range policies…in order to maximize its own gains at the expense of others. For this reason, a liberal international economy requires a power to manage and stabilize the system.” (U.S. Power, p. 40.)

32. “Unless the dominant economic power organizes the international system,” states Gilpin, , for example, “it will collapse into bickering fragments” (U.S. Power, p. 54)Google Scholar.

33. Keohane, Robert O. and Nye, Joseph S., Power and Interdependence: World Politics in Transition (Boston: Little, Brown, 1977), p. 19Google Scholar.

34. For a perceptive discussion of “what American leadership in the world political economy actually meant…between 1947 and 1963,” see Keohane's analysis of the United States and petroleum in his “Hegemonic Leadership and U.S. Foreign Economic Policy in the Long Decade of the 1950s,” in Rapkin, and Avery, , America in a Changing World, pp. 49–76Google Scholar.

35. For example, see the case studies of oceans and money in Keohane and Nye, Power and Interdependence, also Ruggie, “International Regimes, Transactions, and Change,” for a critique of the theory as applied to the postwar monetary and trade regimes; and Cowhey, Peter F. and Long, Edward, “Testing Theories of Regime Change: Hegemonic Decline or Surplus Capacity?” International Organization 37 (Spring 1983), pp. 157–88CrossRefGoogle Scholar, for a discussion of what the authors label the regime for automobiles.

36. Cohen, Benjamin J., Organizing the World's Money: The Political Economy of International Monetary Relations (New York: Basic Books, 1977), p. 105CrossRefGoogle Scholar.

37. Kindleberger, Charles P., “Dominance and Leadership in the International Economy: Exploitation, Public Goods, and Free Rides,” International Studies Quarterly 25 (06 1981), p. 247CrossRefGoogle Scholar.

38. There has recently been somewhat of a revolt against the idea that U.S. power in the international monetary system has declined dramatically, based in part on a disagreement about how international monetary power ought to be measured. Most scholars would agree with Susan Strange's assessment that the United States is still formidable and also agree that U.S. power, whether measured in terms of share of world gross national product, percentage of international trade, vulnerability of the domestic economy to external influences, confidence in the dollar, or legitimacy of U.S. leadership, has declined since the early 1960s. See Strange, , “Still an Extraordinary Power: America's Role in a Global Monetary System,” in Lombra, Raymond E. and Witte, William E., eds., Political Economy of International and Domestic Monetary Relations (Ames: Iowa State University Press, 1982), p. 82Google Scholar. For other discussions of U.S. power, see Keohane, “Theory of Hegemonic Stability”; Cohen, Organizing the World's Money, Krasner, “American Policy and Global Economic Stability”; and Bergsten, C. Fred, The Dilemmas of the Dollar (New York: New York University Press, 1975)Google Scholar, chap. 2.

39. See, for example, the simulations, which, according to a U.S. Treasury official, were run for the Treasury, in Kenen's “Analytics of a Substitution Account.” These simulations were based on assumptions that, according to Kenen, , produced “pessimistic” measures of the financial balance problem (p. 413)Google Scholar.

40. Witteveen had originally suggested a substitution account that would issue SDRs. His proposal was resoundingly rejected, however, because it would have been mandatory, would not have conformed to the demand for substitution, and would have required an 85% vote of IMF members to amend the Articles of Agreement.

41. For a comprehensive discussion of the range of proposals considered, see Kabli, Wadea Ahmad F., “The International Monetary Fund's Proposed Substitution Account and the Reform of the International Monetary System” (Ph.D. diss., Kansas State University, 1981)Google Scholar, chap. 4.

42. U.S., Department of the Treasury, “Memorandum [Re] Our Meeting on the Proposed IMF ‘Substitution Account’…,” 28 02 1980, p. 5Google Scholar (document released by the Department of the Treasury in response to a Freedom of Information Act [FOI A] request).

43. U.S., Department of the Treasury, “Memorandum [Re] Substitution Account,” 16 01 1980, pp. 8–9Google Scholar (document released by the Department of the Treasury in response to an FOIA request).

44. The Fund gold to be committed to the account was estimated at about 20–30 million ounces. Whether the less developed countries would have approved this use of Fund gold was never clear, since the account collapsed before discussions with the LDCs on this point would have been worth pursuing. The LDCs, who did not generally see the account as in their interest (because they feared it would reduce the Eurodollar market and because most of them did not hold “excess” dollars), were expected to try to extract concessions in exchange for their vote to allow the account to use IMF gold. See Kabli, “IMF's Proposed Substitution Account,” chap. 5, for a discussion of the account and the LDCs.

45. Interview, 15 February 1983.

46. The resistance also derived from the desire to minimize gold sales and to make sure “for domestic political reasons…that the U.S. carries a ‘burden’ in connection with the Account's operation.” Treasury, “Memorandum,” 28 02 1980, p. 3Google Scholar.

47. Quoted in “Germany and the U.S. Hatch a Dollar Plan,” Business Week, 15 October 1979, p. 36.

48. U.S., Department of the Treasury, “Substitution Account,” 16 02 1979, p. 4Google Scholar (document released by the Department of the Treasury in response to an FOIA request).

49. U.S., Department of the Treasury, “Memorandum [Re] Substitution Account Discussions—Status and Background,” approx. 09 or 10 1979, p. 4Google Scholar(document released by the Department of the Treasury in response to an FOIA request).

50. Meyer, Martin, The Fate of the Dollar (New York: Truman Talley, 1980)Google Scholar.

51. Congressional Quarterly Almanac, 1980 (Washington, D.C., 1981), p. 343Google Scholar.

52. Interview, 14 March 1983, attributed by permission.

53. Solomon, Robert, The International Monetary System, 1945–1981 (New York: Harper & Row, 1982), p. 292Google Scholar.

54. Interviews. The Group of Thirty, a private group composed of officials from government and international agencies, private bankers, academics, and corporate executives did, however, endorse the account in its monograph, Reserve Assets and a Substitution Account: Towards a Less Unstable International Monetary System (New York: Group of Thirty, 1980)Google Scholar.

55. U.S., Congress, Joint Economic Committee, Subcommittee on International Economics, Hearings, Domestic and International Implications of the Federal Reserve's New Policy Actions, 96th Cong., 1st sess., 5 11 1979, p. 49Google Scholar. Guaranty, Morgan also published an article skeptical about the account in its World Financial Newsletter, 09 1979, pp. 5–14Google Scholar.

56. Of 35 articles indexed under IMF in the August 1978–July 1979 annual Business Periodical Index, none was on the substitution account; the corresponding figures for the August 1979–July 1980 volume are 39 and 2. Of 83 articles listed under IMF in the 1979 Wall Street Journal Index, 4 were on the substitution account; the corresponding figures for 1980 were 74 and 2.

57. Interviews.

58. Whether Blumenthal would have endorsed the same position is unclear. Blumenthal stated, through an aide, that he was only marginally involved in the account and refused to be interviewed.

59. In December 1978, the average price of oil was $13 per barrel; by January 1980, it was $28 per barrel (Economic Report of the President [1980], pp. 156–57).

60. Interview, 7 April 1983, attributed by permission.

61. Strange, , “Still an Extraordinary Power,” p. 117Google Scholar.

62. Keohane, “Theory of Hegemonic Stability.”

63. Triffin, Robert, Gold and the Dollar Crisis (New Haven: Yale University Press, 1961)Google Scholar.

64. After an initial allocation of SDRs in 1970–72, there were no further SDR allocations until 1979. Between 1970 and 1977, foreign exchange reserves rose “from SDR 33 billion to SDR 200 billion—a 600% increase in seven years.” Kabli, , “IMF's Proposed Substitution Account,” pp. 118–19Google Scholar.

65. “At every stage in the discussion” of the Committee of Twenty, observes H. Marcus Fleming, “reform proposals have lagged behind events” and have been quickly outdated by new events. See his “Reflections on International Monetary Reform,” Essays in International Finance no. 102 (Princeton: Princeton University International Finance Section, 1974), p. 17Google Scholar.

66. Calculated from 1979/80 Statistical Yearbook (New York: United Nations, 1981)Google Scholar.

67. Hardin, , Collective Action, p. 208Google Scholar.

68. Wolfers, Arnold, “The Actors in International Politics,” in his Discord and Collaboration (Baltimore: Johns Hopkins University Press, 1962), pp. 3–24Google Scholar. As Lawrence Officer and Thomas D. Willett have argued, a small group may successfully supply the collective good of international monetary stability when its members perceive that the system has entered what they call a “crisis zone.” See their “Reserve-Asset Preferences and the Confidence Problem in the Crisis Zone,” Quarterly Journal of Economics 83 (11 1969), pp. 668–95Google Scholar. I am grateful to an IO referee for pointing out this article.

69. It can, of course, be argued that part of the explantion for the weak state in the United States is the fact that the United States never needed a strong state to protect it against security threats from outside powers; in this sense, the weak state can be seen as a product of the international system. It is, however, equally obvious that domestic factors—e.g., the absence of a feudal class and an abundance of economic resources—also explain the relative power of state and society in the United States.