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date: 26 February 2021

Abstract and Keywords

This article highlights the impact of postwar international monetary regimes on the domestic political economy in the United States. It demonstrates that the dollar's key currency status and US payment deficits to supply liquidity have created both the seigniorage problem in the mechanism of liquidity creation and the benign neglect problem in the mechanism of adjustment. These institutional defects in the postwar international monetary regimes, moreover, have affected the United States in three distinctive ways. First, the Federal government has regarded its policy autonomy as a top priority and pursued its policy goals with heavy debt financing. The resulting budget deficits and Federal debts were the major sources of the global glut of liquidity. Second, the US financial industry has emphasized its competitiveness in credit creation, securitizing various assets in society, lending out money with high leverage, and escaping from government regulation. This contributed directly to changes that accounted for the outbreak of the subprime loan crisis. Third, affected by the dollar's key currency status, the US manufacturing industry led the development of global production. This nurtured the global glut of saving in export-oriented countries and OPEC. As multinational corporations invested heavily overseas, the job-creating capacity of US manufacturing was seriously weakened.

Keywords: international monetary regimes, United States, dollar, payment deficits, liquidity, debt financing, financial policy, manufacturing industry, export

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