S. Shadow Banking and the Global Dollar System

The primacy of the dollar in international finance and global markets is a core element of American hegemony--an "exorbitant privilege" that implicates everything from fiscal policy to national security. Most analysts attribute the rise of the dollar simply to the size of the U.S. economy and the reach of its armed forces in the wake of the Second World War. But, the global dollar system was not primarily a product of private ordering. In fact, it was a project of active construction by the government, in which the U.S. central bank, the Federal Reserve, and other federal instrumentalities deployed a variety of legal techniques to nurture and bolster the use of the dollar abroad. An outgrowth of those efforts was the so-called shadow banking system: financial institutions that fund themselves by issuing near-money claims but which are outside the purview of bank regulators and supervisors. Shadow banks now form the backbone of the global dollar system but have also proven inherently unstable. Their collapse was at the heart of the Great Financial Crisis of 2008 and Covid panic of 2020. This seminar will explore the origins and growth of the global dollar system, starting with the design of modern American banking and the Federal Reserve System through the intense financial strain of two World Wars, the birth and collapse of the Bretton Woods System, the financialization of the American economy in the 1980-200s, the Great Financial Crisis, its aftermath, and the Covid market panic. We will focus on the motivations of policy makers at the time and tools at their disposal, as well as the unintended consequences of those decisions.

The waitlist for this course will not be promoted in numerical order. Waitlisted students will be asked to submit a paragraph of interest after the lottery is run. Professor Menand will choose additional students based upon these submissions.