From Territorial to Monetary Sovereignty

Theoretical Inquiries in Law, Vol. 18, Iss. 2, pp. 491 to 517, July 2017

Columbia Law and Economics Working Paper No. 591

25 Pages Posted: 18 Sep 2018

See all articles by Katharina Pistor

Katharina Pistor

Columbia University School of Law

Date Written: August 14, 2018

Abstract

State sovereignty is closely intertwined with, but not limited to, control over territory and people. It has long been recognized that control over monetary affairs is a critical part of genuine sovereignty. In this Article, I go a step further and argue that the relevance and importance of territorial versus monetary sovereignty has shifted in favor of the latter. This shift goes hand in hand with the rise of credit-based financial systems. Such systems depend, in the last instance, on backstopping by an entity with control over its own money supply and no binding survival constraints. Only states with monetary sovereignty fit this pattern. All others are de facto more like private entities, which by definition cannot manipulate their own survival constraint. States can surrender their monetary sovereignty directly by adopting another currency or by issuing their own debt in foreign currency and under foreign law. They also compromise their sovereignty by permitting unlimited capital inflows denominated in currencies other than their own. This is because in times of crisis they will not be able to rescue the domestic financial system from its tendency to self-destruct without subjecting itself to a sovereign debt crisis and the implied need to rely on a lifeline from other states or supranational entities.

JEL Classification: E5, F6, K33, P43

Suggested Citation

Pistor, Katharina, From Territorial to Monetary Sovereignty (August 14, 2018). Theoretical Inquiries in Law, Vol. 18, Iss. 2, pp. 491 to 517, July 2017; Columbia Law and Economics Working Paper No. 591. Available at SSRN: https://ssrn.com/abstract=3251397 or http://dx.doi.org/10.2139/ssrn.3251397

Katharina Pistor (Contact Author)

Columbia University School of Law ( email )

435 West 116th Street
New York, NY 10025
United States
212-854-0068 (Phone)
212-854-7946 (Fax)

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