Financial Statecraft


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The Role of Financial Markets in American Foreign Policy

Benn Steil and Robert E. Litan

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As trade flows expanded and trade agreements proliferated after World War II, governments—most notably the United States—came increasingly to use their power over imports and exports to influence the behavior of other countries. But trade is not the only way in which nations interact economically. Over the past two decades, another form of economic exchange has risen to a level of vastly greater significance and political concern: the purchase and sale of financial assets across borders. Nearly $2 trillion worth of currency now moves cross-border every day, roughly 90 percent of which is accounted for by financial flows unrelated to trade in goods and services—a stunning inversion of the figures in 1970. The time is ripe to ask fundamental questions about what Benn Steil and Robert Litan have coined as “financial statecraft,” or those aspects of economic statecraft directed at influencing international capital flows. How precisely has the American government practiced financial statecraft? How effective have these efforts been? And how can they be made more effective? The authors provide penetrating and incisive answers in this timely and stimulating book.

Benn Steil is director of international economics at the Council on Foreign Relations and the editor of International Finance. Robert E. Litan is vice president of research and policy at the Kauffman Foundation and senior fellow in the Economic Studies Program at the Brookings Institution.

Financial Statecraft should be required reading for those who conduct U.S. foreign policy as well as everyone who cares about it. A lot of people are struggling to define America’s role in the world in the twenty-first century, but no comprehensive analysis of the opportunities and risks will now be complete without reference to this insightful book.”—Jeffrey E. Garten, Juan Trippe Professor of International Trade, Finance, and Business at the Yale School of Management, former undersecretary of commerce for international trade

"Financial statecraft is much practiced, little analyzed. This fine book discusses what it is, how it has been applied by the United States, what its (often severe) limitations are, and what its potential is. Altogether, an excellent exposition of a complicated subject for scholars, journalists, and policy-makers alike."—Richard N. Cooper, Boas Professor of International Economics, Harvard University

"Benn Steil and Robert Litan have written the first book devoted to financial statecraft, and it is essential reading for anyone interested in the critical issue of influencing the international capital flows that make an integrated global economy function.  As one who was directly involved in a variety of the issues so thoughtfully and creatively discussed in Financial Statecraft, I can say without equivocation that Steil and Litan have performed a signal service in helping us better understand the tools of financial statecraft and the best ways to employ them for the benefit of the United States and the world economy.”—Stuart Eizenstat, former US Ambassador to the EU and Deputy Secretary of Treasury

“A highly readable account of an important, if potentially dry, subject: how international capital flows have been and are still used as instruments of foreign policy. . . . What makes Financial Statecraft particularly useful for non-economists and policymakers, as well as Wall Street executives and historians alike, is the authors’ willingness to be prescriptive about finance in public policy. . . . This is a useful, accessible book for lay readers seeking an understanding of the important role that capital flows play in the making of foreign policy.”—Economist

"Scholarly treatment of financial statecraft has been meager, but this book is a major first step. . . . Policymakers, researchers, and global executives will come away from this book with a new perspective on the economics of foreign policy in the modern world."—Sean Silverthorne, Harvard Business School Working Knowledge

'...a highly readable account...a useful, accessible book for lay readers seeking an understanding of the important role that capital flows play in the making of foreign policy.' - The Economist

"The aim of think-tankers Steil and Litan is to craft the classic text on financial statecraft, which targets capital flows, thus distinguishing it from economic statecraft, which focuses on trade. It can have immediate consequences and is little understood. This gap in our global knowledge base is well filled here."—Library Journal

"Must reading for federal finance experts."—US Exchequer

"From the 'Who Dunnit?' to the 'When Should We Intervene?' questions of financial crises, this important new book is valuable reading for serious students and practitioners of financial policy."—Glenn Hubbard, Dean of Columbia Business School and former Chairman of Council of Economic Advisers

Selected as an Outstanding Academic Title for 2006 by Choice Magazine

Selected as one of the Best Business Books of 2006 by Library Journal

ISBN: 9780300138412
Publication Date: February 28, 2008
224 pages, 6 1/8 x 9 1/4
3 charts and graphs

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