The study of international monetary economics is, at its core, an investigation into a persistent and fundamental tension: the conflict between internationally coordinated monetary policies, designed to foster global stability, and nationally focused policies, which prioritize domestic objectives. This dichotomy is not merely an academic distinction; it is the central drama of 20th-century global finance. Grasping the principles of monetary internationalism versus monetary nationalism is essential to understanding the structure of global economic relations, the successes of the past, and the profound challenges that led to widespread instability.

1.1 Defining Monetary Internationalism

At the outset, it is crucial to differentiate “monetary internationalism” from the hypothetical notion of a “world monetary system” that might exist in a unified “World State.” A true world system would imply a single global sovereignty, a world currency, and a World Central Bank. Monetary internationalism, as practiced historically, is a far more practical and nuanced concept. It does not require the abolition of national sovereignty but rather its enlightened exercise.

Monetary internationalism is a policy framework built upon the coordination of independent national policies. It recognizes the reality of a world divided into sovereign states but seeks to harmonize their actions to achieve a common goal: stable international monetary relations that facilitate the smooth working of global trade and finance. The success of such a system depends on individual nations freely adopting an “internationally minded” approach to their domestic policy-making. As Heilperin states:

“an ‘international policy’ is a set of co-ordinated national policies.”

This framework acknowledges that even policies born from international agreements are ultimately executed as national policies. The spirit of internationalism, therefore, resides in the willingness of sovereign states to align their objectives for the greater good of the international economic order.

1.2 The Nature of Monetary Nationalism

Monetary nationalism represents the opposing policy orientation, where the stability of international economic relations is subordinated to the pursuit of purely national objectives. It is a doctrine that prioritizes domestic concerns to the extent that it disrupts the international system.

Professor F. A. von Hayek defined monetary nationalism as the doctrine that a country’s share of the world’s money supply should not be determined by the same principles that govern money flows between its own internal regions. Heilperin finds this definition flawed because it ignores the fundamental political and economic distinctions between interregional and international relations. The comparison is weak for several key reasons:

1. Multiplicity of Sovereignties: Within a single country, one sovereign authority controls the total money supply. In the international sphere, there are many sovereign authorities, each controlling its own currency. The “world’s supply of money” is merely a statistical summation of these independent national supplies, not a centrally controlled pool to be distributed.
2. Restrictions on Factor Movements: The free movement of goods, capital, and labor within a country is a given. Internationally, these movements are subject to a wide array of restrictions (tariffs, quotas, capital controls, migration policies) imposed by sovereign states.
3. Independent National Policies: Regions within a country do not have independent monetary, trade, or fiscal policies. Nations do. This fact gives rise to the entire problem of the balance of payments, a concept that has no meaningful equivalent in interregional economics.

Therefore, monetary nationalism is better understood not as a deviation from an interregional model, but as a policy choice by a sovereign state to prioritize its own goals at the expense of international coordination and stability.

1.3 The Core Dilemma: Internal vs. External Stability

A frequently cited justification for monetary nationalism is the supposed dilemma between maintaining internal stability (typically defined as a stable domestic price level) and ensuring external stability (stable foreign exchange rates). Proponents of this view argue that a nation must choose one, sacrificing the other. A country might allow its exchange rate to fluctuate in order to shield its domestic economy from foreign disturbances and pursue independent price stabilization, or it might sacrifice its domestic price stability to keep its currency’s value fixed in relation to others.

Heilperin argues that this dilemma is “more apparent than real.” The two objectives are not mutually exclusive but are, under normal conditions, deeply intertwined.

• External on Internal: Fluctuating exchange rates directly impact internal prices. For a nation heavily reliant on foreign trade, a depreciating currency raises the cost of imported raw materials and consumer goods, feeding domestic inflation. The idea of a stable internal price level in the face of volatile exchange rates is largely an illusion for most economies.
• Internal on External: Conversely, internal instability undermines the international system. A country undergoing significant domestic inflation or deflation will inevitably disrupt its balance of payments, putting pressure on exchange rates and destabilizing its trading partners.

The pursuit of “national stability” through monetary nationalism, by neglecting the international dimension, often leads to the very instability it seeks to avoid. True stability, both internal and external, can only be achieved through a coordinated approach that recognizes their interdependence.

This conceptual framework of internationalism versus nationalism provides the lens through which to view historical monetary systems. The primary instrument through which monetary internationalism was most successfully practiced was the international gold standard.