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Currency hierarchy and underdevelopment

Author

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  • Hansjörg Herr
  • Zeynep Nettekoven

    (N/A)

Abstract

Money in capitalism is a social force which exists not only on the level of wealth owners, but is also a force which stimulates economic development (or fails to do so). According to Hajo Riese the asset-protecting function of money, which can be expressed in a liquidity premium, indicates different qualities of money. At the top of the hierarchy are a small number of currencies which take over national and international functions; at the bottom are currencies which only partly take over national functions. Countries issuing these currencies suffer from dollarisation and capital flight. The consequence is that they cannot have a strong and sustainable Schumpeterian credit–investment mechanism. External credit seems to be a solution, but external debt together with credit dollarisation leads to a fragile domestic financial system and the likelihood of overindebtedness. A poor quality of money is one key element in explaining the reproduction of underdevelopment.

Suggested Citation

  • Hansjörg Herr & Zeynep Nettekoven, 2022. "Currency hierarchy and underdevelopment," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 19(2), pages 238-259, September.
    • Handle: RePEc:elg:ejeepi:v:19:y:2022:i:2:p238-259
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    More about this item

    Keywords

    currency hierarchy; dollarisation; underdevelopment;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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