The Federal Reserve is commonly depicted as an institution set up to fulfill domestic functions, only later taking on its significant international and geopolitical dimensions. In this view, the Fed’s origins are found in various domestic concerns, such as bankers’ desire to cartelize themselves, exporters’ bid to make the American financial system more stable and liquid so as not to rely on London for loans, farmers’ project to break up New York’s “money trust” and spread financial services more evenly throughout the country, and the collective desire to put an end to the apparently endemic panic in US money markets.
Although there is an abundant literature on the financial projection of US power (“Dollar Diplomacy”) whose main characters overlap conspicuously with the cast of domestic, Progressive Era reformers (“corporate liberalism”), the two narratives have yet to be integrated. Because the Fed’s opening was almost coincident with the first shots of the Great War, with the consequent enervation of European finance and the extension of American war loans, the story of the global rise of Wall Street typically includes geopolitics solely by reference to that conflict. But from their foundation, central banks have been embedded in the violence and hierarchy of the world-system. The history of America’s banking institutions demonstrates how global military and economic networks have shaped the development of nation states, as much as the reverse.
Global comparisons, interimperial competition, and the transnational flow of ideas were all present at the creation of America’s modern monetary apparatus. After an intensive study of European monetary history and colonial currencies, a cohort of corporate intellectuals decided the US needed a central bank to succeed in interimperial competition over currency blocs. Even though their initial reform efforts were blocked at home, the Spanish-American war opened up new opportunities to experiment in the periphery of America’s empire. Those experiments eventually came back home to inform the creation of the Fed.
The resulting dollar bloc was a hegemonic project. Its shape and trajectory had as much to do with Latin American resistance and terms of consent as it did with metropolitan blueprints for world order. To successfully court peripheral elites beyond those the US conquered, and to avoid detonating protests by the masses in those it did, US planners chose not to simply lay down terms of subordination. As a result, efforts to internationalize the dollar varied according to local conditions in Puerto Rico, the Philippines, Nicaragua, and other sites of the growing US colonial sphere. Puerto Rican riots and Mexican finance ministers are as much a part of this story as Princeton economics professors. These are the interimperial and Pan-American origins of the Federal Reserve and the world dollar.