151. Reflecting the post–Cold War zeitgeist, Japan’s ODA Charter, established in 1991, bluntly prohibited the use of foreign aid for security purposes. Widely seen in Japan as a necessary counter to Chinese geoeconomic influence in the region, Abe’s reforms will do away with this prohibition on foreign aid for geopolitical purposes, and will direct more assistance dollars to “seed support for overseas activities by Japanese firms in regions of vital importance.” Ibid.
152. “But Belarus, too, although on a far lesser scale, has been punished in the recent past for seeking economic aid from China.” Peter Beaumont, “Russia Makes Latest High-Risk Move to Keep Pieces of Its ‘Near Abroad’ in Check,” Guardian, March 1, 2014.
153. As Moscow was applying some of its heaviest trade sanctions on Ukraine, President Putin presented proposals including a $15 billion financing program for Ukraine, reduced natural gas prices, and promises to continue cooperation on joint projects in nuclear energy and technology as well as the manufacturing sectors. See David Herszenhorn and Andrew Kramer, “Russia Offers Cash Infusion for Ukraine,” New York Times, December 17, 2013; Darina Marchak and Katya Gorchinskaya, “Russia Gives Ukraine Cheap Gas, $15 Billion in Loans,” Kyiv Post, December 17, 2013; “Kiev Testing ‘Pause’ in EU Integration,” Kiev Ukraine News Blog, November 15, 2013, http://news.kievukraine.info/2013/11/kiev-testing-pause-in-eu-integration.html.
154. For a discussion of a smart, strategic approach to the Eastern Partnership, including how Russia’s increasingly assertive tactics should be balanced alongside the long-standing ties binding the Eastern Partnership countries to the EU, see Richard Youngs and Kateryna Pishchikova, “Smart Geostrategy for the Eastern Partnership,” Carnegie Foundation Europe, November 14, 2013.
155. Henry Sanderson and Michael Forsythe, China’s Superbank: Debt, Oil and Influence—How China Development Bank is Rewriting the Rules of Finance (New York: John Wiley & Sons, 2012), 41; Pruden Ho, “Chinese Bank Takes Great Leap Forward,” Wall Street Journal, September 4, 2012.
156. Sanderson and Forsythe, China’s Superbank, preface.
157. According to Martyn Davies, CEO of Johannesburg-based Frontier Advisory, “The deepest rationale for the BRICS is almost certainly the creation of new Bretton Woods–type institutions that are inclined toward the developing world. There’s a shift in power from the traditional to the emerging world … there is a lot of geopolitical concern about this shift.” Mike Cohen and Ilya Arkhipov, “BRICS Nations Plan New Bank to Bypass World Bank, IMF,” Bloomberg Business, March 26, 2013.
158. Barry Eichengreen, “Do the Brics Need Their Own Development Bank?,” Guardian, August 14, 2014. For analysis of the AIIB, see Andrew Higgins and David E. Sanger, “3 European Powers Say They Will Join China-Led Bank,” New York Times, March 17, 2015; and see Sebastian Heilmann, Moritz Rudolf, Mikko Huotari, and Johannes Buckow, “China’s Shadow Foreign Policy: Parallel Structures Challenge the Established International Order,” Mercator Institute for China Studies, China Monitor 18 (October 28, 2014).
159. Eichengreen, “Do the Brics Need Their Own Development Bank?”; see also Dingding Chen, “3 Reasons the BRICS’ New Development Bank Matters,” Diplomat, July 23, 2014.
160. Jeremi Suri, “State Finance and National Power: Great Britain, China, and the United States in Historical Perspective,” Tobin Project discussion paper on “Sustainable National Security Strategy,” January 2014.
161. Ibid.
162. Jeremi Suri noted that Paul Kennedy examines this history in depth, reaffirming the necessity of sound finance for sustenance and preservation of great powers (see “State Finance and National Power”). In his controversial text, Paul Kennedy asserts that nations can grow and expand without sound finance, but they cannot sustain that growth and expansion if they confront capital shortages resulting from burdensome foreign military or occupation expenses. See Paul Kennedy, The Rise and Fall of the Great Powers: Economic Change and Military Conflict from 1500 to 2000 (New York: Random House, 1987), xv–xxv, 73–139. Also see Michael J. Mazarr, “The Risks of Ignoring Strategic Insolvency,” Washington Quarterly 35, no. 4 (2012): 7–22; David Landes, The Wealth and Poverty of Nations: Why Some Are So Rich and Some So Poor (New York: W. W. Norton, 1998).
163. Suri’s reference here is to Kennedy, The Rise and Fall of the Great Powers, 76–86.
164. Paul Kennedy is, yet again, a prime example. His Rise and Fall of the Great Powers links sound finances to great-power preservation, but without an update for recent evolutions in the global financial and monetary landscape. Daniel Drezner looks at global economic governance in the wake of the financial crisis in The System Worked: How the World Stopped Another Great Depression (New York: Oxford University Press, 2014), 184–185, and notes that the relative influence of the United States declined on some dimensions but remained resilient in many others. He specifically points to Washington’s control of the global reserve currency, capital markets, and asset ownership.
165. Charles P. Kindleberger, Power and Money: The Economics of International Politics and the Politics of International Economics (New York: Basic Books, 1970), 204.
166. Daniel Dăianu, “Re-discovering the Values of Bretton Woods,” Europe’s World, October 1, 2013; George Melloan, “The Euro Has Been a Smashing Success,” Wall Street Journal, March 8, 2010; Russell Shorto, “In Praise of the Euro: A Case for the World’s Most Hated Currency,” New Republic, November 8, 2011.
167. Romano Prodi, former president of the European Commission, quoted in David Fairlamb, “Euros in Hand, Europe Expects a New Era,” Bloomberg Businessweek, January 1, 2002. Also see Strobe Talbott, “Monnet’s Brand & Europe’s Fat,” Brookings Essay, February 11, 2014.
168. Bundesbank Council meeting with Chancellor Schmidt (assurances on operation EMS), November 30, 1978, Bundesbank Archive, declassified 2008.
169. Richard Milne, “Latvia Sees Joining Euro as Extra Protection against Russia,” Financial Times, December 30, 2013.
170. Ibid.
171. Jonathan Kirshner, an international political economy historian at Cornell University, takes a fresh look at the link between the dollar’s international status and U.S. ability to project power in the aftermath of the 2008–2009 global financial crisis, arguing that the crisis has reduced the dollar’s global status and with it the geopolitical standing of the United States. Jonathan Kirshner, “Bringing Them All Back Home: Dollar Diminution and U.S. Power,” Washington Quarterly, Summer 2013.
172. As Kirshner explains in earlier work, safe haven flows into the United States during global political confrontation have meant that the United States generally has not had to worry about a simultaneous political and financial crisis. See Jonathan Kirshner, “The Inescapable Politics of Money” in Jonathan Kirshner, ed., Monetary Orders: Ambiguous Economics, Ubiquitous Politics (Ithaca, N.Y.: Cornell University Press, 2003). Also see generally Jonathan Kirshner, Currency and Coercion: The Political Economy of International Monetary Power (Princeton, N.J.: Princeton University Press, 1995).
173. From 2000 to 2005, the dollar share of global reserves as indicated by the IMF COFER data has decreased by 4.4 percentage points on a value basis and 2.2 percentage points on a quantity basis. Anna Wong and Ted Truman, “Measurement and Inference in International Reserve Diversification,” Peterson International Institute for Economics, Working Paper 07-06, July 2007.
174. Arvind Subramanian, “The Inevitable Superpower: Why China’s Dominance Is a Sure Thing,” Foreign Affairs, September/October 2011; Kirshner, “Bringing Them All Back Home”; Sebastian Mallaby and Olin Wethington, “The Future of the Yuan,” Foreign Affairs, January/February 2012; Robert Zoellick, “The Currency of Power,” Foreign Policy, October 8, 2012.
175. Alan Wheatley, The Power of Currencies and Currencies of Power (London: International Institute for Strategic Studies, 2013), 13.
176. “The financial crisis … let us clearly see how unreasonable the current international monetary system is,” said Li Ruogu, head o
f China Ex-Im Bank (Geoff Dyer, David Pilling, and Henny Sender, “A Strategy to Straddle the Planet,” Financial Times, January 17, 2011). Former World Bank chief economist Justin Yifu Lin echoed these sentiments, reportedly telling an audience at Bruegel, a Brussels-based economic think-tank, “The dominance of the greenback is the root cause of global financial and economic crises.” See Michael Barris, Fu Jing, and Chen Jia, “Replace Dollar with Super Currency: Economist,” China Daily USA, last updated January 29, 2014.
177. Dyer, Pilling, and Sender, “A Strategy to Straddle the Planet.”
178. “[A] self-serving Washington has abused its superpower status and introduced even more chaos into the world by shifting financial risks overseas … the cyclical stagnation in Washington for a viable bipartisan solution over a federal budget and an approval for raising debt ceiling has again left many nations’ tremendous dollar assets in jeopardy and the international community highly agonized.… The developing and emerging market economies need to have more say in major international financial institutions including the World Bank and the International Monetary Fund, so that they could better reflect the transformations of the global economic and political landscape. What may also be included as a key part of an effective reform is the introduction of a new international reserve currency that is to be created to replace the dominant U.S. dollar, so that the international community could permanently stay away from the spillover of the intensifying domestic political turmoil in the United States.” “Commentary: U.S. Fiscal Failure Warrants a De-Americanized World,” Xinhua, October 13, 2013. See also Mark Landler, “Seeing Its Own Money at Risk, China Rails at U.S.,” New York Times, October 15, 2013.
179. A 2010 paper coauthored by Asian Development Bank chief economist Dongyun Park casts the issue in even stronger terms, suggesting that the growing presence of SWFs and more activist management and investing of central bank reserves will also contribute to a diminished global role for the dollar, and in so doing, will accelerate reforms to the global monetary system. Donghyun Park, “Asia’s Sovereign Wealth Funds and Reform of the Global Reserve System,” Nanyang Technological University, 2010.
180. See generally “Beijing Symposium on the Future of the International Monetary System and the Role of the RMB,” organized by Council on Foreign Relations, November 2011, conference papers available online at www.cfr.org/thinktank/cgs/beijingpapers.html. See also Sebastian Mallaby and Olin Wethington, “The Future of the Yuan,” Foreign Affairs, January/February 2012.
181. While some would point to the global monetary system prior to World War I (dominated by the British pound, the German deutschmark, and the U.S. dollar), all systemic reserve currencies in the first half of the twentieth century were effectively pegged to gold, in contrast to today’s fiat system.
182. Benn Steil elaborates on this point in “The End of National Currency,” Foreign Affairs, May/June 2007. See also Barry Eichengreen, “The Once and Future Dollar,” American Interest, May/June 2012.
183. Barry Eichengreen reflects on this point in his remarks at the conference “Internationalization of the Renminbi: Its Implications for China’s Domestic Reform and the International System,” University of San Diego, June 7–8, 2012, noting that “throughout history all reserve currencies were managed by democratic governments.” Conference summary available at http://china.ucsd.edu/_files/renminbi/pdf-rmb-report.pdf.
184. See note 41 in this chapter and the IMF’s Currency Composition of Official Foreign Exchange Reserves (COFER) Report. When updated in December 2014, the 2014Q2 estimate for total foreign exchange holdings was $12 trillion. By comparison, in March 2006, reserves held by monetary authorities worldwide totaled $4.9 trillion, equivalent to 11 percent of world GDP at the time. According to the Bank of International Settlements Quarterly Review in September 2006, “Between 1995 and 2005, all industrial countries reported to COFER but only 80–90 developing countries did, accounting for between 51 and 66% of total developing countries’ reserves. The IMF does not identify the contributing countries but, considering the size of the gap, China appears to be among those missing. Furthermore, changes in reporting practices make comparisons over time difficult.” Available online at http://bis.hasbeenforeclosed.com/publ/qtrpdf/r_qt0609e.pdf.
185. “Security considerations also drive reserve management in parts of Asia, where Japan, South Korea, and Taiwan are under the U.S. diplomatic and military wing. Even if there is no explicit quid pro quo, it is hard to conceive that they would jeopardize relations with the U.S. by abandoning the dollar. Limited diversification into other currencies would be understandable, but a public threat by Japan in 1998 to sell U.S. bonds, for example … has not been repeated.” Wheatley, The Power of Currencies and Currencies of Power.
186. Min Zeng, “Big Drop in Foreigners’ Treasury Holdings at Fed Stirs Talk,” Wall Street Journal, March 14, 2014; Patrick Jenkins, Daniel Schäfer, Courtney Weaver, and Jack Farchy, “Russian Companies Withdraw Billions from West, Say Moscow Bankers,” Financial Times, March 14, 2014.
187. Michael Mackenzie and Philip Stafford, “Belgium Packs Punch in U.S. Treasury Market,” Financial Times, April 15, 2014; Martin Wolf, “Debt Troubles within the Great Wall,” Financial Times, April 1, 2014.
188. See data from U.S. Treasury at www.treasury.gov/ticdata/Publish/mfh.txt as well as Mackenzie and Stafford, “Belgium Packs Punch in U.S. Treasury Market.”
189. Mackenzie and Stafford, “Belgium Packs Punch in U.S. Treasury Market.”
190. “The ‘Shocking’ Buying Spree of America’s Mysterious Third Largest Treasury Holder Ramps Higher,” Zero Hedge, April 15, 2014.
191. Citing analysis from David Yoo, a foreign exchange trader from the Bank of America/Merrill Lynch, journalist Jeff Cox finds that China most likely bought U.S. treasuries in 2014Q1 given its relatively large reserves inflows and its preference to keep a large share of FX reserves in U.S. Treasuries. Jeff Cox, “As everyone else sells, China buys U.S. debt,” CNBC, April 29, 2014.
192. As several economists have noted, Tokyo has more financial maneuvering room than might seem apparent, thanks to what Carmen Reinhart, from the Harvard Kennedy School, and Vincent Reinhart, chief economist at Morgan Stanley, have called a “war chest of liquid assets at its disposal.” Japan’s citizens, not foreign hedge funds, own 95 percent of the country’s debt, thus making it “unlikely the public would dump their bond holdings if the government takes on more debt to rebuild.” In addition, Japanese authorities have been stockpiling foreign exchange reserves for years, nearing totals of $1 trillion (or slightly below 20 percent of total GDP). See Carmen Reinhart and Vincent Reinhart, “Japan Must Dip into Its Rainy Day Fund,” Financial Times, March 24, 2011; Marcus Noland, “Will the Crisis Create a New Japan?,” Washington Post, March 16, 2011.
193. Kirshner, “Bringing Them All Back Home,” 39.
194. Washington has renewed its enthusiasm for loan guarantees in recent years—and guarantees to Jordan, Tunisia, and Ukraine have served crucial geopolitical interests for Washington, although these cases were more about ensuring against state insolvency and instability in crucial moments than about achieving any single diplomatic aim.
195. John Goshko, “Baker Firm on Guarantees as Mideast Talks Resume,” Washington Post, February 25, 1992. GAO reports paint a different story, however, describing how loan guarantees had no discernible effect on Israeli housing policies and did not influence the Israeli government’s decisions on where to build new housing or on how much settlement activity to undertake in occupied territories. General Accounting Office, National Security and International Affairs Division, Report B-247481 to Robert C. Byrd, Chairman of Committee on Appropriations, February 12, 1992, available at http://gao.justia.com/department-of-the-treasury/1992/2/israel-nsiad-92-119/NSIAD-92-119-full-report.pdf.
196. Bonds were issued in euros with the aim of helping alleviate the consequences of Ukraine’s critically low foreign exchange reserves at the time. Concerns surrounding the eurobonds resurf
aced in September 2014, as a clause in the original bail-bond may enable the Kremlin to demand immediate repayment, forcing Western leaders to scramble up more cash for Kiev or, in the worst-case scenario, forcing payment on all Ukraine’s remaining dollar bonds if Moscow is not paid on time. Sujata Rao, “As Ukraine’s Debt Tangle Unwinds, Russia Holds Key Thread,” Reuters, September 24, 2014.
197. Anna Gelpern, “Russia’s contract arbitrage,” Capital Markets Law Journal 9, no. 3 (2014): 308–326. First published online June 25, 2014.
198. Ibid.
199. “The Asian Financial Crisis of 1997–1998,” China Daily, June 7, 2012.
200. Robert E. Rubin and Jacob Weisberg, In an Uncertain World: Tough Choices from Wall Street to Washington (New York: Random House, 2004), 25.
201. Under the country’s obligations to NAFTA, Mexican president Carlos Salinas de Gortari implemented a strong economic adjustment program to liberalize trade with Canada and the United States, a decision that boosted Mexican FDI by 40 percent and staved off ripple effects of the currency crisis. Daniel Lederman, William F. Maloney, and Luis Serven, Lessons from NAFTA for Latin America and the Caribbean (Washington, D.C.: World Bank, 2005); M. Angeles Villarreal, “NAFTA and the Mexican Economy,” Congressional Research Service, June 3, 2010, 7.
202. Germany, the EU’s paymaster, has been at the heart of the euro zone crisis. In the words of Chancellor Merkel, “The progress of [Germany] is as dependent as ever on making headway in Europe and on enduringly overcoming the sovereign debt crisis in earnest.” Erik Kirschbaum, “Merkel Says Permanently Fixing Euro Zone Crisis Vital for Germany,” Reuters, December 30, 2013; also see Sebastian Dullien and Ulrike Guérot, “The Long Shadow of Ordoliberalism: Germany’s Approach to the Euro Crisis,” European Council on Foreign Relations, Policy Brief No. 49, February 2012.
203. See Alexander Reisenbichler and Kimberly J. Morgan, “How Germany Won the Euro Crisis,” Foreign Affairs, June 20, 2013; Jack Ewing, “German Court Validates Participation in Euro Zone Bailout Fund,” New York Times, March 18, 2014.
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