Currency boards, depoliticization and macroeconomic stability: the political economy of institutional complementarities^*

* Earlier versions of this article were presented at the Annual Meeting of the American Political Science Association in Washington, DC, 28–31 August 2014 and at the 22nd International Conference of Europeanists, 8–10 July 2015 and published in Lithuanian in the journal Politologija. The authors would like to thank the anonymous reviewers of this article and David Steinberg for valuable comments as well as Vaida Gineikytė for her research assistance.

ABSTRACT

This article analyzes the potential for institutional design to depoliticize macroeconomic policy-making by examining currency board arrangements. It develops a novel argument to understand the effects of institutional design based on institutional complementarities. This argument highlights that the functioning of a given institution is conditioned by the broader institutional context. The article contrasts this framework with two common approaches – here termed the institutional design and the epiphenomenalism views – and argues that the centrality of institutional complementarities can account for the mixed record of currency boards. The most important complementarities of a currency board are with fiscal, labor market and informal institutions, which are important prerequisites for successful currency boards. By drawing on recent advances in the study of depoliticization, we show how these institutions contribute to governmental, societal and discursive depoliticization. This argument is evaluated by examining three case studies of currency boards – Argentina, Estonia and Lithuania. The article also explores some broader implications of this analysis for understanding the depoliticization of economic policy.

KEYWORDS:

• Currency boards
• depoliticization
• institutional complementarities
• political economy
• macroeconomic policy
• institutional design
• Argentina
• Estonia
• Lithuania

Notes on contributors

Magnus Feldmann is a lecturer in politics at the School of Sociology, Politics and International Studies, the University of Bristol, UK. His research focuses on political economy and comparative politics.

Vytautas Kuokštis is Associate Professor at the Institute of International Relations and Political Science, Vilnius University, Lithuania. His research focuses on international and comparative political economy.

Notes

* Earlier versions of this article were presented at the Annual Meeting of the American Political Science Association in Washington, DC, 28–31 August 2014 and at the 22nd International Conference of Europeanists, 8–10 July 2015 and published in Lithuanian in the journal Politologija. The authors would like to thank the anonymous reviewers of this article and David Steinberg for valuable comments as well as Vaida Gineikytė for her research assistance.

1. Strict adherence to currency board criteria would rule out conventional central banking and any attempts by the monetary authority to engage in sterilization or other form of intervention in financial markets. Since none of the modern currency boards have fully respected these restrictions, Hanke (2002) prefers to refer to them as currency board-like regimes. This paper follows conventional practice and simply uses the term currency board (Williamson 1995).