ABSTRACT
Does the rise of global finance erode democratic choice and state authority? The ability to move large volumes of money swiftly across borders is seen by many scholars and policymakers as representing one of the most significant global transformations in the post-Cold War era. Whereas the architects of the Bretton Woods system explicitly rejected the principle of free capital movement in favor of free trade,1 the collapse of the Bretton Woods system in the early 1970s has been followed by the dramatic rise of capital mobility that increasingly dwarfs the total volume of world trade. Foreign exchange transactions, which hovered between 10 billion dollars and 20 billion dollars per day in 1973, grew to 80 billion dollars in 1980 and to 1.2 trillion dollars by 1995, raising the ratio of foreign exchange trade to world trade from 2 : 1 in 1973 to 50 : 1 in 1980 and roughly 70 : 1 by 1995.2 Signs of greater capital mobility can also be seen in other financial transactions. In the international bond and equity market, portfolio holdings of equity and long-term bonds reached an astonishing 5.2 trillion dollars in 1997. Moreover, the annual turnover in derivative contracts among the world’s top 71 banks and securities, valued at 3.4 trillion dollars in 1990, skyrocketed to more than 130 trillion dollars by 1998.3
Understandably, these profound changes have drawn the attention of a wide range of scholars, journalists, and policymakers. Helen Milner and Robert Keohane, two leading scholars in the field of international political economy, suggest that given the rise of global finance, international capital should be treated as a “structural characteristic of the international system similar to anarchy,” the key ordering principle in the study of international relations. Just as states can only ignore the anarchical international system at the risk of jeopardizing their own security, so too, argue Milner and Keohane “the international capitalist economy has become a fact that individual states confront and can only ignore or seek to change by paying such high costs that no state can afford it.”4
