Divested Interests: Globalization and the New Politics of Exchange Rates

Abstract

The globalization of production and finance is responsible for much of the variation in political contestation over exchange rates since the end of Bretton Woods. On the one hand, globalization increases the salience of the policy decisions that affect exchange rates, as more firms and their workers engage more in international trade and compete more against imports. On the other hand, globalization offers firms a myriad of opportunities to manage their exchange rate risk, through operational and financial hedging. But hedging is available to only certain types of economic actors and in certain situations of exchange rate risk. In this way, globalization has redrawn traditional political cleavages on exchange rates. This argument is tested with an original survey of US firms, labor unions, and trade associations on their preferences and political activity on exchange rate policy.