Finance and Geopolitics

Abstract

Abstract Under Milton Friedman’s neoclassical orthodoxy, finance and security were seen as somewhat different areas. For the current moment, a better guide is Karl Polanyi’s view that financial markets are ‘embedded’ within a social, cultural, political and therefore geopolitical context. Non-financial, security-driven motives now significantly shape the financial activities of governments, central banks and investors. The Trump administration’s strategic capitalism clashes directly with China’s state capitalism. The European Central Bank has declared its intention to pursue greater ‘monetary sovereignty’. And the existing financial order could unravel rapidly, given that the United States’ persistent use of sanctions has induced China, Iran and Russia to search more actively for dollar alternatives. Dollar dominance is in part a diplomatic construct, and more contingent than commonly understood. A historical sensibility is needed that is comfortable with uncertainty, alert to context and aware of patterns of the past.