In 2011, IMF Managing Director Christine Lagarde praised Brazil for finding the ‘enviable sweet spot’ between sustained growth and reduced external vulnerability, allowing it to become ‘one of the world’s leading emerging markets’. This statement reflected the enthusiasm of the international financial community at the time: Brazil and other emerging capitalist economies (ECEs) had weathered the 2008 global financial crisis relatively well, the post-crisis economic recovery had been swift, growth prospects looked much better than in advanced capitalist countries, and primary commodities and asset prices were booming. ECE’s sovereign credit ratings and funding conditions improved, and large volumes of money-capital flows poured in.
But things quickly changed. A combination of factors, including the end of the commodity boom, the worsening of the Euro crisis, the US Fed ‘taper tantrum’, and a looming crisis in China, led to a deterioration in global economic conditions and rapidly changing global risk aversion from 2013 onwards. ECEs were badly hit, and the tragically familiar sequence of ‘manias, panics, and crashes’ returned. Money-capital inflows sharply slowed down or reversed, in a context of sovereign credit downgrades, falling currencies, and financial distress. The international financial community drastically revised down its evaluation of the growth prospects in ECEs: the boom in money-capital flows had led to ‘plenty of disappointment’. State authorities implemented violent bouts of austerity, in desperate attempts to restore international investor confidence, often dramatically worsening domestic socio-political crises (for instance in Brazil, Turkey, South Africa, Ukraine).
This raises the following question: despite extensive – and to a large extent, successful – policy efforts which aimed at building large foreign reserve accumulation as a ‘war chest’ against financial instability, developing deep, liquid and sophisticated financial markets, enforcing tight banking supervision and regulation, why do ECEs still remain so highly financially vulnerable to changing global conditions and global patterns of volatile money-capital flows? In other words, why does the ‘terrorism of money’, that is, the abstract and impersonal power of capitalist discipline under the form of money over national state policy-making, take such an acute form in ECEs? In a recent article published in Geoforum, I argue that answering those questions requires examining the concrete and distinct geographies of expression of the ‘terrorism of money’, as well as the relations of space and power that characterise the integration of ECEs in the global financial and monetary system.
Drawing upon a Marxist political economy approach, enriched by key insights from critical economic geography and Post-Keynesian/Minskian economics, I show that despite growing integration into the financial world market, ECEs have retained a subordinate positionality in what I call the relational geographies of money-power and which are constituted by two overlapping sets of geographies: the geographies of the global monetary system, and the geographies of the global financial system. Let me briefly explain what those are.
1. The geographies of the global monetary system
The current global monetary system is made of a currency hierarchy (or currency pyramid), with different ‘liquidity premiums’ which depend on their ‘degree of convertibility’. This degree relates to currencies’ ability to perform internationally the functions of money, such as unit of account, means of payment, and store of value (which are ultimately related to questions of trust in the ability of states to back the value of their national moneys). The currencies of advanced capitalist states are at the top of the hierarchy, with the US dollar in leading (though contested) position. While the currencies of ECEs, (such as the Brazilian real, the South Africa rand, the Turkish lira, the Indonesian rupiah, etc.), have become widely traded on international currency markets, this has not challenged their subordinate position in the currency pyramid, due to their poor ability to perform the functions previously mentioned. There is therefore a built-in structural asymmetry in the global monetary system which penalises ECEs and translates into a poorer capability to attract money-capital flows. This is most blatant in crisis contexts: ‘drying up’ of liquidity and ‘flight to quality’ during crises amount to capital flight from developing countries (and currency collapse) and a rush to ‘safe’ assets denominated in advanced capitalist countries’ currencies. Re-establishing ‘market confidence’ in ECEs through violent crisis-driven bouts of state-enforced austerity is then crucial to maintain the viability of domestic financial systems and sustain the exploitation of labour by locally-operating capitals.
2. The geographies of the global financial system
I then discuss how ECEs are also disadvantaged by the extremely hierarchical ‘locational’ geographies of the global financial system and its institutions. Due to their capacity to centralise and concentrate the money-power of capital in space and place, world financial centres such as London, New York, Frankfurt, and Tokyo accumulate a vast social power, dominate this hierarchy, and exert control functions over the global financial system as a whole. While financial centres in ECEs such as São Paulo, Johannesburg, Shanghai, Mexico City, Istanbul have become increasingly globally integrated over the past twenty years or so, receiving growing volumes of money-capital flows, and becoming important regional sites of financial innovation, this has not challenged the dominance of the aforementioned world financial centres, which remain disproportionately located in advanced capitalist countries and largely control the global orchestration of money-capital flows.
There are at least two ways through which world financial centres exercise huge power on the wider geographies of the global financial system. First, powerful actors of the global financial system, such as global investment banks, organise their scale of operations and diversification into other geographical markets, from those world financial centres. I show in the article that this has a considerable impact on patterns of money-capital flows, particularly in cases of financial distress. Second, world financial centres exercise huge power on the wider geographies of the global financial system because they are the leading sites of production of financial instruments and knowledges. As such, they have tremendous power in shaping the global circuits of money-capital and in ‘categorising’ the uneven geographies of global finance. Importantly, this categorisation is permeated by a set of power-laden imaginaries and representations: Western- and capital-centric views of history and modernity, stagist/linear conceptions of development, imperial/neo-colonial imaginaries, racism, and specific norms of masculinity. This is reflected in processes of risk valuation, which is partly why ECEs are represented as a cluster of asset classes with relatively high risk/reward ratios, which tend to be favoured by ‘risk-loving’ investors.
More concretely, the subordinate positionality of ECEs in the relational geographies of money-power manifests itself as a systematic volatility of exchange rates and a tendency to high real interest rates, enhanced scrutiny of national policy-making by international investors, rapidly shifting financial reputation and high pro-cyclicality of money-capital inflows, the build-up of specific forms of external vulnerability, brutal money-capital flight during financial distress, and heavy dependence on monetary policy in advanced capitalist countries. As a result, the management of monetary and financial affairs (in relation to labour) is significantly more difficult for the capitalist state in ECEs than it is in advanced capitalist economies.
Let me conclude by highlighting some of the political-strategic implications. It is clear that the subordinate positionality of ECEs in the relational geographies of money-power, and the associated severity of the terrorism of money on national-policy making, impose serious (objective) constraints on political-economic alternatives: the present configuration allows the money-power of capital to prevent, punish or sabotage any emancipatory project of social transformation, at considerable social costs. Accordingly, the struggle for ‘labour-centred development’ in ECEs, that is, for forms of development led by and for workers, peasants and the poor, must also be a struggle for the re-configuration of the relational geographies of money-power, and against the imperialist practices that underpin them. This points to the need for transnational forms of solidarity that can bridge those geographies, involving workers in both countries that receive large amounts of money-capital flows and in those that are the source of those flows.