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Abstract
This paper offers much-needed analytical refinement to the sociology of money. I argue that we need to develop a conceptual vocabulary that enables us to take account of two apparently conflicting trends in the world's money flows. While state-issued ‘currency’ is undergoing a process of homogenization, ‘money’ in a generic sense is diversifying through the rapid growth of new monetary forms. I move on to suggest that all forms of money (some currencies, others not) should be regarded as dual: as monies of account and as monetary media. This dualism sheds new light on a monetary form that sociologists have either ignored or misunderstood, namely the euro. It enables us to conceive of the euro as a highly unorthodox, or hybrid, currency. Moreover, it suggests that, by virtue of this unorthodoxy, the euro zone represents a special case of currency homogenization that may actually stimulate monetary diversification.
Notes
1. There are some exceptions (see Baker Citation2000; Dodd Citation2000, Citation2001b, Citation2001a; Fligstein and McNamara Citation2000).
2. As a consequence, the world of official currency is becoming increasingly stratified. Cohen illustrates this through an analogy with a pyramid, which is ‘narrow at the top, where the strongest currencies dominate; and increasingly broad below, reflecting varying degrees of competitive inferiority’ (2004: 14). In some respects, it must be said, the issues raised by de-territorialization are not new. ‘Weak’ or ‘soft’ currencies have been around for a long time. The difficulty of controlling a currency that circulates beyond the territory in which it is legal tender has been apparent at least since the oil-driven growth of ‘euro-dollars’ during the mid- to late-1970s. In any case, one should not exaggerate the extent to which governments have been free at any point to manipulate monetary policy in the face of international pressures and other economic complexities (see Dodd Citation1994).
3. The idea of a global currency was advocated by Mundell more than a quarter of a century ago (Mundell Citation1968). He has recently refined the notion to mean ‘a world currency (but not a single world currency) in which each country would produce its own unit’ (in Friedman and Mundell Citation2001: 29) – in other words, a system in which all currencies are pegged to a notional world currency. According to Cohen, though, even this is an unlikely prospect. He argues that states will seek to retain their power over currency in order to continue receiving the benefits that such control yields for macroeconomic policy: seniorage, political symbolism, and monetary insulation (2004: 20–4).
4. In Britain, one recent example of this development is the ‘Nectar’ scheme. This scheme incorporates companies in a range of different sectors, such as Sainsbury's (groceries), Barclaycard (credit cards), Vodaphone (mobile phones), BP (petroleum), Hertz (car hire), and E-Energy (electricity and gas). The points that consumers accrue can be converted into air miles, used online to buy consumer durables and package holidays, or exchanged for entry into theme parks and cinemas. The Tesco ‘Clubcard’ – the main rival to the Nectar scheme – is integrated into the supermarket's financial arm, which offers a full range of retail banking services.
6. For example, they may help to alleviate problems such as the shortage of currency, lack of available credit, and declining levels of social capital. In addition, they can make a positive contribution to a community, for example, by establishing social ties (see Fitzpatrick Citation1998: 166; Williams Citation1996; Barry and Proops Citation1998; Calwell Citation2000). From an economic perspective, Schraven (Citation2000) argues that LETS schemes perform three main functions: they provide transaction management services, credit, and market matching.
7. What Cohen calls ‘pure territorial money’ is not, strictly speaking, the same as ‘currency’. ‘Pure territorial money’ refers to a currency that circulates exclusively within the legal jurisdiction of its issuing authority. Cohen argues that this kind of currency is in decline. This – and only this – is what he captures with the concept of ‘de-territorialization’.
8. ‘Money of account’ refers to the scheme in which prices are expressed: for example, ‘dollars’, ‘airmiles’, or ‘Canterbury Tales’. In emphasizing its importance, Ingham draws mainly on Keynes: ‘Money of Account, namely that in which Debts and Prices and General Purchasing Power are expressed is the primary concept of a Theory of Money’ (Keynes Citation1930: 3, cited in Ingham Citation2001: 309).
9. He concedes that the State's role in defining money is being eroded to some degree: ‘globally from the outside’, for example by electronic monies issued by transnational corporations, and ‘locally from the inside’, by local monetary forms such as LETS and other complementary currencies (2004: 177; 1998: 13).
10. Specifically, he states that LETS tokens are ‘not stores of abstract value and means of unilateral payment/settlement, like full money’ (2000: 77, emphasis added).
11. Zelizer argues that a fallacy runs through the classical treatment of money. This fallacy holds that, by drawing an increasing number of social relations into its compass, money is spreading ‘uniformity, precision, and calculation’ into every area of modern society (1994: 12). But in fact, Zelizer's analysis concerns two distinct kinds of homogenization. The first kind consists of the development of homogeneous, or standardized, money. This is similar to the process I have described as the homogenization of currency. Looking ahead to the introduction of the euro, for example, Zelizer argues that the existence of such an internationalized currency might be taken as evidence that money is ‘becoming not only increasingly homogenous but also unstoppable’ (1994: 214). The second kind consists of the homogenization of social life by money. Zelizer refers to this process as ‘monetization’, whereby money comes to mediate an increasing number of social relations and exchanges, replacing ‘personal bonds with calculative instrumental ties, corrupting cultural meanings with materialist concerns’ (ibid.: 12). Although Zelizer runs these kinds of homogenization together, the development of homogeneous money need not presuppose the homogenization of social life by money in the way that she suggests. The second kind of homogenization involves a broader and more complex set of causal relations than the first.
12. This distinction is hinted at by Ingham when he argues that ‘the social earmarking of money for specific purposes … could not occur unless uniform money existed’ (2001: 313). But we can now assume that, by ‘uniform money’, Ingham has currency in mind.
13. Helleiner has written an exceptionally clear account of the history of currency. But, although he opens by describing currency as a ‘form of money’ (2003: xi, emphasis added), he lapses into a treatment of the two terms as if they were synonymous.
14. Ingham refers to this as a ‘conceptual scheme’ (Citation1998: 9). He is right to draw attention to this feature of money, but not to claim that this is the single defining characteristic of money in general.
15. Hart refers to these different qualities of money in terms of the two sides of a coin, ‘the first being the title or description and the second the thing that answers to the description’ (2000: 248; see also Hart Citation1986).
16. As monetary media, official currencies are embodied in a range of material forms, such as notes and coins, credit cards, and so on. As a money of account, official currency is distinct from other accounting schemes, such as airmiles or Ithaca hours. One important issue in this second sense concerns whether or not alternative monies of account can be converted into official currency.
17. Zelizer has proposed the following generic definition of money: ‘International currencies, nationally issued legal tenders, electronic monies, bank accounts, and other highly liquid tokens of transferable rights represent one extreme of a continuum running from such generalized forms to the narrowly limited circuits of such other monies as credits in baby-sitting pools, casino chips, or investment diamonds’ (2000b: 384-5). Here, a number of terms stand in for ‘money’: currency, legal tender, accounts, tokens, rights, credits, and chips. Some of Zelizer's critics have dismissed her characterization of money on account of its breadth. For example, Fine and Lapavitsas argue that ‘Zelizer offers no definition of money at all’ but merely offers ‘a broad range of examples’ (Citation2000: 375). They refer to these examples as a ‘chaotic ensemble’ (ibid.: 376). But the problem is not one of breadth. Rather, Zelizer's definition needs to be broken down in light of the distinction between monetary media and monies of account.
18. Zelizer's research touches on, but does not explicitly acknowledge, this distinction. For example, her analysis of French SEL schemes (which are broadly equivalent to LETS) demonstrates that these local circuits of exchange are bounded by their own particular unit of account (2004: 11). Elsewhere, she suggests that the creation of monies of account as alternatives to official currency historically has led to the ‘formation of segmented exchange cycles, in which actors were isolated from the general economy’ (2000a: 318, trans. Susanne Weber).
19. The phenomenon has made the literature on LETS conceptually perplexing, although such confusions merely reflect a more general misapprehension about how money should be defined.
20. For this reason, the concept of ‘token’ that Zelizer employs in her research is actually more helpful when applied only to monetary media. This token – coin, banknote or smart card – may be denominated in a variety of different units of account, including legal tender. I am grateful to an anonymous referee for drawing my attention to the need for greater clarity on the similarities and differences between Zelizer's terminology and my own.
21. But Hart, too, tends to conflate the monetary medium and money of account. He argues that most of us have access to six different kinds of money: coins, banknotes, cheques, savings accounts, and plastic credit and debit cards (2000: 241). Although he concedes that ‘the relative significance of all of these is constantly shifting’, he suggests all these monetary forms constitute a broader trend towards money's dematerialization: ‘money has become dematerialised, losing any shred of a claim that it is founded on the natural scarcity of precious metals. Even the authority of states, which stamped coinage and issued the notes with which we are still most familiar as money, cannot long survive the electronic blizzard that is money in the age of the Internet’ (ibid.: 233). Hart thereby implies that the medium of e-money presents a new and specific challenge to states’ control over the world's money flows in its own right. But scholars are divided on this issue. While some regard e-money as a direct threat to state control over monetary policy (Kobrin Citation1997, Citation1998; Friedman, Citation1999), others are more sceptical (Helleiner Citation1998; Freedman Citation2000; Goodhart Citation2000; Woodford Citation2000). Greater clarity can be brought to this question if a distinction is drawn between forms of e-money that are denominated in official currency, and those that are not. For example, the technical capability of e-money producers to evade state controls exists irrespective of the unit of account in which their monies are denominated. In other words, this particular nature of the threat to states’ control over money derives from the nature of the medium, not the unit of account. The unit of account would become relevant only when a central bank seeks to intervene in markets for e-money, for example in order to exercise greater influence over the level of interest rates. Where such markets have their own unit of account, the central bank would need to hold reserves that are denominated in that unit of account – just as they do now with foreign reserves (see Cohen Citation2004: 201–2). But the unit of account is relevant in other respects, too, particularly – as with local monies – to the prospects of tax evasion.
22. In fact, the only situation in which the state could lose its monopoly while the official money of account remained stable would be if currency was ‘denationalized’, that is to say, if banks were allowed to issue private monetary media denominated in official currency. Thus in Britain, for example, consumers could choose between pounds issued by Barclays, Lloyds TSB, NatWest, and so on. This was advocated by Hayek during the 1970s, partly as a response to widespread concerns that state control over the production of currency was inherently inflationary (Hayek Citation1976). It is worth bearing in mind that, at the time that Hayek advanced this proposal, the Bank of England lacked formal independence.
23. The ‘euro-11’ became the ‘euro 12’ when Greece joined on 1 January 2001.
24. This hybridism of the euro was acknowledged by Willem Duisenberg, in a speech given early on in his tenure as President of the European Central Bank (ECB): ‘the euro is a currency quite unlike any other. It is not a national currency. Instead it is a supra-national currency created by a monetary union of 11, soon to be 12, sovereign member states creating the second largest monetary area in the world. It is also a very new currency, still less than two years old. It does not yet circulate in the form of banknotes and coins. Not surprisingly, therefore, the euro does indeed attract a great deal of public attention’ (Duisenberg Citation2000a).
25. For example, successive Eurobarometer surveys suggested that less than half of those surveyed regarded themselves as ‘well informed’ about or ‘interested in’ the euro during 2000 for the first half of 2001 (see Eurobarometer Report Nos. 53, 54, 55). Tellingly, interest in the euro began to rise significantly during the second half of 2001, during the lead up to the introduction of euro notes and coins (see Eurobarometer Report No. 56). (These surveys are available at http://europa.eu.int/comm/public_opinion/standard_en.htm.)
26. The decline eventually prompted a co-ordinated intervention within the currency markets by the ECB, the US Federal Reserve, the Bank of England, the Bank of Japan, and the Bank of Canada.
27. In addition, uncertainties about the governance of the new currency were widely discussed within the media. These misgivings mostly concerned the governance of the new currency: for example, the role of the ECB in relation to the Committee of European Finance Ministers (‘Ecofin’), possible tensions between monetary and fiscal policy within the euro zone, and potential conflicts between the two ‘pillars’ of monetary policy (low inflation and economic growth). In addition, the ECB lacked a track record, and market participants were evaluating its policies on interest rate changes and market intervention.
28. In a speech given in October 2000 following successive interventions by the ECB and other central banks in the foreign exchange markets, Duisenberg (the ECB President) argued that ‘[h]istorical evidence shows that, over longer horizons, the fundamentals of the economy…ultimately determine the external value of a currency’ (Duisenberg Citation2000b). In other words, the euro's ‘nominal’ value on the foreign markets was held to be less important than its ‘real’ value in relation to factors such as inflation and economic growth within the euro zone itself. This is an orthodox strategy whenever the ‘value’ of money is placed in question. Duisenberg's task was complicated, however, by the euro's hybrid status. This was underlined by Pedro Solbes, the EU monetary and financial affairs commissioner, when he said that ‘a euro is a euro. That's the reality: the depreciation against the dollar has no significance from an internal perspective’ (Wall Street Journal Europe 27–8 October 2000). Solbes’ phraseology was revealing. To say that ‘a euro is a euro’ was already to concede ground to the fact that the euro did not yet have a status that was equivalent to the currencies it was due to replace.
29. This undermines Ingham's stance on the euro's status between 1999 and 2002. According to him, although euro notes and coins were not introduced until 2002, ‘the “money” had existed as a means of setting prices, contracting debts and as a means of payment for over a year [sic] before it was embodied in these media of exchange’ (2004: 3). That is to say, the euro ‘performed all the functions [of money] apart from being a circulating medium of exchange’ (ibid.: 227 n. 9). But this interpretation takes for granted what it is meant to explain: namely, that ‘money’ is equivalent to ‘money of account’.
30. According to a Eurobarometer Flash Survey conducted in November 2004, this is especially so when large (or exceptional) purchases are made: across the EU 12, 48 per cent of those surveyed calculate mainly in their extant national currencies when making purchases such as a house or car, while a further 31 per cent calculate in both euros and their old national currencies. But, even in respect of smaller, everyday (or common) purchases, only 52 per cent of those surveyed now calculate most often in euros. Significantly, only 54 per cent of respondents would like dual pricing to be discontinued, although this ranges widely across the euro zone: the figure is as high as 79 per cent in the Netherlands and as low as 37 per cent in France. Intriguingly, support for continued dual pricing correlates positively with age and educational attainment (Eurobarometer Flash Survey no. 165, ‘The euro, three years later’, available at http://europa.eu.int/comm/public_opinion/flash/fl165_euro_en.pdf).
31. Such practices include, for example, the assorted ways that the euro changes hands between people, different expectations about managing domestic budgets, tipping, and queuing at cash machines, and various beliefs about responsible borrowing and lending. As far as the relationship between the euro and ‘identity’ is concerned, this is broadly consistent with the argument of Risse et al. that ‘collective identification with Europe comes in national colours’ (1999: 175).
32. Indeed, many commentators have argued that the euro is destined to fail by virtue of this lack of fit. Prior to the launch of the euro, for example, scholars were broadly in agreement that the ECB would lack political accountability (Dyson and Featherstone Citation1999; Verdun Citation1998; Elgie Citation1998; Berman and McNamara Citation1999), and that this might undermine its legitimacy (Buiter Citation1999; Eijffinger and Dehaan Citation1996).
33. According to Ingham, the ‘technocratic assumptions’ underlying the institutional design of the ECB reproduce a flawed neo-classical orthodoxy that monetary policy is a ‘technical’ exercise transcending political considerations (2004: 195). If this interpretation is correct, one would imagine that the euro would meet with approval from neo-liberal commentators because monetary policy would have been insulated from political interference. But quite the opposite is true. Feldstein has most forcefully advanced the neo-liberal case against the euro in a series of influential articles that portray the euro as a political project that has been allowed to transcend economic questions. According to Feldstein, there is likely to be political conflict within the euro zone whenever monetary policy is deflationary – even if identical policy choices would have been made by sovereign governments (1997a: 65–6; see also Rose Citation2002).
34. For example, the ECB has agreed to publish its economic forecasts, despite earlier fears that the impact of these could be inflationary. MEPs are also pressing for a redefinition of the ECB's criteria for price stability, and to engage ECB officials in debates over monetary policy which that are prospective, not just retrospective (Jabko Citation2003: 724).
35. The ‘Euro-12’ consists of ministers from the twelve member states of the euro zone.
36. The argument is complicated further by the prospect of enlargement of the euro zone. As agreed under the Treaty of Nice in December 2000, the presence of more central bankers on the Governing Council of the ECB, relative to the number of ECB officials, gives rise to possibility that ECB policy could be increasingly slanted by regional interests (Baldwin et al. Citation2001; see also Meade and Sheets, Citation2002).
37. Mundell defines a currency area as ‘a domain within which exchange rates are fixed’ (1961: 657). He argues that the optimum currency area is not the world but the single region (ibid.: 660). That single region can be said to exist when there is a high degree of ‘factor mobility’, i.e. mobility of labour and capital, within its borders as opposed to factor immobility beyond them (ibid.: 663). OCA theory has been refined considerably since Mundell's earlier work. In addition to some of the contributions cited below, some economists have criticized the basic principles behind OCA theory as too ‘backward looking’. That is to say, trade cycles within a currency are such as the euro zone may change as a result of the introduction of a single currency (see Rose Citation2000; Rose and Van Wincoop Citation2001; Melitz Citation2001; Persson Citation2001). Understandably, this approach has been favourably cited by Ottmar Issing, the current ECB President (see Issing Citation2004).
38. Ingham has suggested that the theory of optimal currency areas, or OCA theory, was used as a primary justification for introducing the euro (2004: 191). This is incorrect. While the ‘convergence criteria’ that that were laid out in the Maastricht Treaty were based on OCA theory, most economists – and even many politicians who were actually in favour of currency union – were broadly agreed that the euro zone was not an optimal currency area in any strict sense of the term, and was unlikely to become one in the foreseeable future. Oddly enough, although Mundell himself is a supporter of the euro, his arguments have more often been used by those who are opposed to it (see McKinnon, Citation2002).
39. In seeking to explain this discrepancy, recent economic studies have focused on variables such as industry mix and size within specific regions of the euro zone (Carlino and Defina Citation1998), the differential share of industrial employment (Arnold, Citation1999), the propensity of industries within particular regions to export (Guiso et al. Citation1999), and the sector mix within the different regions of the euro zone (Ramos et al. Citation1999). A second group of arguments suggest that a single monetary policy within the euro zone is likely to increase regional imbalances. These arguments focus on the banking system itself. Here, the literature draws on new Keynesian monetary theory. Recent studies have focused on variables such as local banking conditions (Fazzio and Provenzano Citation1999), rates of transmission of monetary policy itself through the banking system in different countries and regions (Kashyap and Stein Citation1997), and the availability of non-bank sources of finance (Cecchetti Citation1999). ‘Transmission’ primarily refers to the speed at which interest-rate changes work themselves through into the lending rates of domestic banks – thereby affecting users of the euro themselves. This is not only a question of banking structure. Monetary policy can also have variable effects on savers as opposed to consumers within the euro zone. Where household financial liability is high and the level of savings is low – such as in Spain – an interest-rate rise is likely to reduce consumption. Where liability is low and savings high – and above all, where a relatively large proportion of savings consists of government issues (such as in Italy) an interest-rate rise may actually increase household disposable income (Dornbusch et al. Citation1998: 45–6). Such observations are important to any understanding of both the efficacy and impact of ECB policy: not only on economic behaviour itself but on the perceptions people will have of the ‘fairness’ of that policy – and, by extension, on the credibility of the ECB itself.
40. By 2002, Portugal, Germany and France had already exceeded the 3 per cent ceiling on budget deficits by significant margins. According to Feldmann, such countries have avoided sanctions largely through political coalition (Citation2003: 305).
41. According to Rodríguez-Fuentes and Dow, decisions on monetary policy can also feed back into the monetary system itself as a result of variations in the local demand for credit and the willingness of banks to lend. By themselves, these factors are only indirectly affected by decisions made by a central bank. But in more impoverished regions, they can actually deepen the asymmetrical effects of a single monetary policy over time: ‘When confidence in peripheral economies falters, particularly given the weak knowledge base of banks with respect to the periphery, there is scope for sharp retractions of credit availability. The banks’ liquidity preference rises in general as the national economy declines, but it is the credit to the peripheral economies that tends to be at the margin where credit contraction bites hardest. The end result is greater instability in credit growth in peripheral economies’ (Rodriguez-Fuentes and Dow 2003: 977). In other words, the problem is endogenous and well as exogenous.
42. According to Silvia, this undermines the argument that the euro zone would develop into an optimal currency area ‘after the fact’. He suggests that, on the contrary, a ‘rigidity trap’ has emerged within the euro zone that consists of a tight monetary policy, forced fiscal consolidation, and deflationary pressures in some member states (2004: 163–4). On the specific question of labour market flexibility, he argues that ‘policymakers should simply concede that even under the most optimistic of scenarios, labour markets in the euro area are never going to become flexible enough to serve as the principal vector of adjustment for the currency area’ (ibid.: 165).
43. Scholars have never agreed on a satisfactory definition of money. Each of the dominant approaches – for example, that money is a set of economic functions, a special commodity, or a creature of the state – has its own theoretical flaws (see Dodd Citation1994).
44. Intriguingly, when Simmel sent a copy of the second, revised, edition of The Philosophy of Money to Hermann Keyserling, he attached a note advising him to ‘skip over chapter two or at most to flick through it.… This chapter is the most technical one on the book’ (cited in Frisby, ‘Preface to the 2nd edition’, Simmel Citation1978: xxxii).
45. Simmel writes: ‘It is not technically feasible to accomplish what is conceptually correct, namely to transform the money function into a pure token money, and to detach it completely from every substantial value that limits the quantity of money, even though the actual development of money suggests that this will be the final outcome’ (1978: 165). This has been misunderstood by Fine and Lapavitsas, among others (2000: 380 n. 12). Specifically, they appear not to have grasped that the fundamental meaning of ‘idea’ in this context is Kantian.
