Introduction
As an advocate of socialism and Third World liberation, Samir Amin situated his research at the intersection of capitalism and imperialism to highlight exploitative practices at the local and global level, and to propose the potential means for challenging them. His analysis crossbred critical tenets of Marxist political economy such as the theory of surplus value and the problem of overaccumulation and underconsumption with the reality of imperial relations in the global economy. This research agenda generated productive concepts and shed critical light on the role of the peripheral state in sustaining exploitative and dependent relations with the triad (Europe, USA and Japan). In this paper, I draw upon and update key ideas in Amin’s work to describe the contours of a contemporary form of dependency shaped by financialisation.
This paper makes several contributions. First, by foregrounding the financial aspects of the current capitalist system, the article makes a case for expanding dependency theory analysis beyond trade relations, production networks and labour exploitation. Today, financial factors, such as capital flows, the interest rate and the exchange rate, play a more substantial role in reproducing subordinate relations in the global economy, a fact that remains underappreciated in the literature. Second, a focus on financial factors brings into view the vast resources that developing countries expend to maintain access to the global economy, an expense that registers more in the monetary and financial sphere and less in the fiscal sphere, a fact that traditional analyses focused on government spending largely miss. Third, the paper extends the financialisation literature, which remains confined to the analysis of transformations within national economies, to show how imperial relations and existing structures of dependency produce the ideal conditions for financial exploitation on a global scale. Finally, the paper raises questions about policy priorities for developing countries: whether to maintain access to the global economy at whatever cost, or to pursue regulatory measures (capital controls and prudential regulation) that mitigate integration into a volatile global economy largely shaped by the priorities of core economies.
The paper is organised as follows. In the first section after this introduction, I describe some of Amin’s key contributions to dependency theory. Specifically, I focus on the concept of ‘imperialist rent’ and the role of the national state in perpetuating dependent relations. In the third section, I update dependency theory with insights from the financialisation literature. Here, I focus on the logic of financial accumulation – profiting from price differentials – to show how existing dependent relations enhance the application of a financial logic on a global scale. In the fourth section, I reinterpret imperialist rent in a financialised global economy and analyse new ways in which the state facilitates subordinate financialisation. Imperialist rent today, I argue, consists not only of labour arbitrage but also financial arbitrage, whereby global investors benefit from differences in key prices across national states. On the role of the state, I outline how the peripheral state manages access to the global economy with largely monetary means. Subordinate financialisation, I argue, exemplifies a new form of dependency that necessitates an updated understanding of capitalist exploitation and extraction in the global economy.
Amin on dependent development
Dependency theory, which flourished in Latin America in the 1960s, with works like Andre Gunder Frank’s Capitalism and underdevelopment in Latin America (1967), and real-world events such as the Chinese and Cuban Revolutions (Foster 2015),1 reaffirmed capitalism’s imperial character as a system based on polarisation: growth at the core and underdevelopment in capitalism’s peripheries. Amin was a founding author of this Marxist-inspired dependency theory literature. His work was centred around explaining capitalism on a global scale, which made theories of imperialism a defining part of his oeuvre. In his 1957 dissertation, which was later published as Accumulation on a world scale, Amin (1974) built on insights from the works of V.I. Lenin, Nikolai Bukharin and Rosa Luxemburg, who saw uneven development and conflict between nation-states as part and parcel of the capitalist logic of accumulation on a world scale.
Along with other dependency theorists, Amin contended that the periphery served as the means of resolving a fundamental problem of capitalism. Imperialism provided the infrastructure and channels necessary to overcome the dual problem of over-accumulation and under-consumption in monopoly capitalism. Access to the global periphery created opportunities for the reinvestment of surplus. Furthermore, the relocation of plants and factories to the global periphery gave imperial capital access to domestic markets behind tariff barriers, further cementing unequal exchange in trading relationships. Imperial capital therefore accelerated the process of industrialisation in the global periphery while simultaneously diminishing the potential for the autonomous development of productive forces by creating a weak and dependent bourgeoisie. Amin called this the ‘super-exploitation’ of the global periphery.
In dependency theory, the hierarchy in the global economy remains understood primarily through the lens of industrial capital and trade relationships. Amin’s work, too, explained the development of underdevelopment, or the unchanging relationship between the centre and periphery, primarily in terms of the exploitation of labour and a ‘race for resources’ which resulted in new forms of ‘extractivism’ (Foster 2015). For example, borrowing from Andre Gunder Frank, Amin called the acceleration of generalised monopoly capitalism into the global South ‘lumpen development’. He argued that the imperial centre’s project to maintain its power through globalised capitalism resulted in an increase in ‘survival activities’ and contributed to the rise of an informal economy where pauperisation of the masses was central to the logic of accumulation (Amin 2019). Amin’s work was, then, no different from the majority of dependency literature that was confined to the orbit of trade relations and production networks (Kaltenbrunner and Painceira 2018).
Notwithstanding the centrality of production and labour in his analysis, Amin’s work generated concepts critical for updating dependency theory. One of these is ‘imperialist rent’, which he derived from the idea of monopoly rent. While monopolies have always existed, Amin argued, what we had in the modern era was a case of ‘generalized monopolies’ whereby a handful of corporations dominated across all sectors (Amin 2019). Monopolies occupied a privileged position in capitalism with their ability to extract surplus value at a higher rate than non-monopoly capital. On a global scale, ‘monopoly rent’, which already multiplied surplus value, also became ‘imperial rent’, as the difference in wages between labour across nations was greater than the difference between their productivities, resulting in the ‘super-exploitation of labour in the periphery’ (Foster 2011). Thus, if monopoly rent was extracted from the periphery of the global capitalist system, it was also an ‘imperialist rent’, a concept that has been described elsewhere as global labour arbitrage (Amin 2019). The concept of imperialist rent, which remains tied to labour in conventional analysis, demands a re-examination in the context of rapid financialisation.
Amin also wrote extensively on the role of the peripheral state in reproducing relations of dependency. According to one author, part of Amin’s legacy is the development of ‘geopolitical economy’, which recognises the ‘materiality of nations’ and the economic role that the state plays in a capitalist system (Desai 2019). While Amin acknowledged and affirmed the importance of the state, the services it performed in a financialised global economy remained obscure in his writings. Moreover, hewing close to the idea of market supremacy in neoliberalism, Amin theorised a retreat of the state from key economic matters, with high finance assuming the political and economic levers of the capitalist system. The active enforcers of this new political-economic arrangement were the triad, through global institutions such as the Group of Seven (G7), the North Atlantic Treaty Organization (NATO), and the International Monetary Fund (IMF). This analysis focuses on the more visible, and explicitly contentious, policies rolled out by the state, such as deregulation and privatisation.
In the sections that follow, I engage with Amin’s ideas on imperialist rent and the peripheral state in order to update dependency theory in the context of financialisation. Along with critical political economists, I argue that in a financialised economy, imperialist rent extends beyond labour exploitation to financial arbitrage, where capital benefits from trading developing country assets and developing countries, increasingly grouped into investment indices, as financial assets. Second, I contend that the peripheral state itself has come to occupy a central position in sustaining relations of dependency through its management of the monetary and financial sphere. States have increased their intervention in the less tangible sphere of prices, primarily the interest rate and the exchange rate, resulting in a new form of tribute paid to the centre for participating in the global financial market. Before delving into these arguments, in the next section, I provide a brief summary of the financialisation literature with a special focus on the logic of financial accumulation.
A financialised global economy
Dependency theorists discuss financialisation as an antidote to the problem of stagnation in late capitalism – that is, as a logical outcome of the monopolistic tendencies of capitalism (Foster 2011). In the context of declining wages and shrinking revenue of non-monopoly capital, monopoly capital, faced with the twin crises of over-accumulation and under-consumption, turned to increased centralisation, concentration and globalisation of capital. As a result, the old system, which was based on the unequal division of labour between the centre and the periphery, came to be replaced by a ‘financial geography’ that was ruled by a ‘financial logic’ (Amin 2008, 58). While he did not explicitly define this new logic, Amin described it vaguely as a product of the strategies of an elite ‘finance-oligopoly’, that sought to benefit from differences in key prices across national economies, primarily the interest rate and the exchange rate (Amin 2008).
The bridge that connects dependency theory and financialisation is the logic that underlies financial accumulation. Financial accumulation is based on trading a portfolio of liquid assets to maximise returns (Lapavitsas and Levina 2010; Stockhammer 2012; Levina 2014).2 Profit in financial investments is therefore ‘capital gains-like’ and very distinct from revenue that is generated through real investments (Lapavitsas and Levina 2010; Levina 2014). The trading of financial securities for profit is clear in the context of core economies that have developed, liquid and deep financial markets, which some scholars refer to as the take-off of the second circuit of capital, which runs on a variety of sophisticated financial securities and capitalised land rent (Becker et al. 2010). On a global scale, involving developing countries, the accumulation manifests in a more rudimentary form, whereby profit is generated through interest-bearing capital. If asset price inflation defines financial accumulation in the former case, in the latter case, interest rate differentials contribute to accumulation; higher interest rates are offered in the global periphery compared to core economies.
The concept of difference, then, is key to the logic of financial accumulation. Campbell Jones (2016) elaborates:
Finance would be nothing without the differential value relation, a differential that is perhaps most intuitively conceived as a relation between the characteristics of things. Financial capital trades on the differential pricing of a thing or its derivatives, sometimes at an imagined simultaneous moment but in practice in differential pricing across time and place. (Jones 2016, 36)
The logic of finance is, then, to exploit spatio-temporal differences in pricing. In financial economics, this difference is deemed irrational, a mistake to be corrected. But in reality, such ‘mispricings’ reflect risks associated with the embeddedness of financial assets in social and global relations (LiPuma and Lee 2012). Thus, the under-development of peripheral countries, evident in their external vulnerability and political instability, imposes a higher risk premium on their financial assets, ensuring that peripheral countries pay a higher interest rate than their wealthier counterparts for similar financial assets. The difference in the valuation of core and peripheral financial securities, whether in equities, corporate or sovereign bonds, or currency derivatives, reflects the hierarchy in the global economic system that rests on past relations of extraction and underdevelopment.
Updating dependency theory
The ‘taper tantrum’ in May 2013 put into stark relief a contemporary form of dependency in the global economy. Overnight, a large volume of capital left emerging capitalist economies (ECEs) overnight on the expectation of the US Federal Reserve winding down its quantitative easing (QE) programme. Unlike previous episodes of capital flight in the 1980s and 1990s, better fundamentals such as the rate of economic growth or public debt failed to provide any insulation from a sudden reversal of capital flows. Even ECEs with solid macroeconomic fundamentals were left struggling with sharp depreciations in their currencies, drops in equity prices and a depletion of foreign exchange (FX) reserves. What shaped investor sentiment were not macroeconomic fundamentals in ECEs, but monetary policy changes at the core, primarily in the United States. The taper tantrum revealed the heightened external vulnerability of ECEs in a rapidly financialising global economy.
Dependency theorists have long theorised the subordination of developing countries in the global economy. Drawing on this rich literature and other critical intellectual streams, scholars in critical political economy have begun to shed light on how existing imperial relations mediate financialisation tendencies (Painceira 2009; Becker et al. 2010; Andrade and Prates 2013; Powell 2013; Kaltenbrunner and Painceira 2018). This phenomenon is understood as the subordinate integration of emerging market economies into the global financial system, or simply as ‘subordinate financialisation’.
Subordinate financialisation captures the extent to which dynamics at the core of the global economy shape economic and monetary policy in peripheral countries (Powell 2013). The already subordinate status of developing countries in the international system, resulting from existing trade relations and foreign direct investment patterns, is now compounded by monetary subordination, subjecting developing countries to heightened external vulnerability, a dominance in short-term portfolio flows seeking high returns, and structural balance-of-payment crises (Kaltenbrunner and Painceira 2018). Monetary subordination leaves developing countries with little room to manoeuvre in terms of setting key prices in the economy and demands vast resources for sterilisation operations and foreign exchange reserve accumulation. These trends culminate in increased indebtedness and deindustrialisation trends, already visible in large economies such as Brazil. In the context of the Arab world, scholars identify ‘de-development’ as a critical outcome of financialisation, largely driven by petrodollars (Kadri 2014). In the next two subsections, I use insights from the financialisation literature to update the concept of ‘imperialist rent’ in a financialised economy and expound on the role of the state, primarily that of the central bank, in managing and perpetuating financial dependency.
A new imperialist rent
In the context of a financialising global economy, ‘imperialist rent’ is no longer limited to labour arbitrage but is also derived from financial arbitrage. Financial arbitrage is made possible by the subordinate status (lower liquidity premium) of developing country currencies in the international monetary system. The liquidity of a currency is defined as its ability to act as an international store of value (reserve currency), unit of account (denomination in contracts) and medium of exchange (Andrade and Prates 2013). Currencies issued at the centre of the system, in core economies, have greater liquidity than those issued in the periphery. Peripheral currencies are essentially nonliquid, requiring them to pay a higher interest rate on debt in order to attract foreign capital. The widening interest rate differential between the core and periphery results in an increase in the volume of short-term flows to developing countries seeking financial returns. In the current stage of capitalism, profiteering from developing countries is therefore based more directly on their position in the capitalist system, and is less dependent on productive forces within an economy (from extraction of surplus value).
The role of world money in the exercise of imperial power is central to the analysis of subordinate financialisation. The currency that occupies the top position in the international monetary system endows the issuing state with ‘exorbitant economic privileges’: seigniorage benefits, cheap savings and credit, and freedom from payment disciplines (Powell 2013). Thus, under the British empire, the sterling-gold standard functioned as world money, while in the postcolonial period, the dollar-gold standard underlay trade and commerce in the international system. The monetary and financial system that emerged with the collapse of the Bretton Woods System in 1973 placed the US dollar at the top, serving as ‘quasi world money’ or ‘reserve currency’ – that is, as the ultimate means of payments in the international context (Painceira 2009). The dollar as world currency is backed by nothing other than the US state’s financial, economic and military strength, attracting global savings to the core, and perpetuating the power of the US empire (Gindin and Panitch 2013).
If currencies at the core (particularly the US dollar) enjoy privileges, on the other end, currencies of the periphery are subject to many disadvantages, such as extreme volatility in the exchange rate (and therefore in currency and other financial markets) and less manoeuvrability in setting monetary policy. Developing country assets are perceived to be riskier – perceptions informed by past currency crises – forcing both state and corporate sectors to compensate by paying a higher risk premium (Kaltenbrunner 2010). The pressure on the interest rate from an illiquid currency is compounded by neoliberal policies such as inflation-targeting regimes that take the short-term interest rate as the main policy tool. For example, when central banks conduct sterilisation operations to limit domestic liquidity expansion from the purchase of foreign exchange to stem currency appreciation, they issue at a high interest rate in order to induce investors to replace foreign assets with domestic assets. The difference between the interest rate at the core and the periphery is captured in Figure 1.
Interest rates for select emerging capitalist economies and advanced economies.
Data source: International Monetary Fund (IMF) International Financial Statistics.
Figure 1 depicts financial arbitrage opportunities that exist in the global economy. Today, the interest rates offered at the centre are at historic lows while interest rates in the periphery, particularly in the semi-periphery, are relatively high. Interest rates in the triad (Europe, Japan and the US) fell considerably following the 2008 financial crisis as countries implemented quantitative easing programmes. Also clear in Figure 1 is the fact that contra Amin’s analysis, high finance now benefits from low interest rates at the core: investors can borrow cheaply in US dollars and lend dear in peripheral countries, and profit from the interest rate differential as well as peripheral-currency appreciation. What we have today, then, is a system where lower interest rates at the core in fact fuel financial accumulation thanks to decades of financial liberalisation, including more open capital accounts in developing countries.
Financial accumulation on a global scale coincides with peripheral states losing control over key policy decisions. The flow of capital to the periphery is increasingly determined by policy positions of the triad, primarily the US, and the liquidity preferences of global investors. In the post-Bretton Woods era, characterised by higher volatility in exchange rates and a high degree of contagion, financial distress emanates from the epicentre of the system to the global periphery (Andrade and Prates 2013). In other words, exogenous factors, rooted in core countries, are more influential in determining financial flows across the globe. Indeed, most financial crises in developing countries manifest as problems of US dollar liquidity or solvency, related to decisions of the US Federal Reserve (Kaltenbrunner and Painceira 2018).
Monetary dependency is by no means an alien concept in peripheral countries. Scholars have described the CFA franc (franc des colonies françaises d'Afrique), which exists as two currency unions pegged to the euro, as a ‘most rigid and opaque institutional arrangement’ that constrains policy space for sovereign African nations (Koddenbrock 2020). The CFA franc ties the hands of policymakers in the region through reserve requirements and credit coverage ratio rules. For example, since 2005, each of the two central banks of the CFA franc zone has had to deposit at least half of the pooled foreign exchange reserves of its member countries into a special account held at the French treasury. The monetary stability that the two currency unions offer, mainly in the form of low inflation, comes with distributional and political implications: limits on credit creation at home, limits on running fiscal deficits to stimulate growth in the domestic economy, and a turn to accumulating foreign reserves and the financing of long-term investments with foreign finance (Koddenbrock and Sylla 2019). The monetary dependence that African countries in the CFA franc zone experience is compounded by US dollar hegemony.
The US dollar’s primacy in the international monetary system ensures that domestic political economy imperatives of the US are felt by peripheral states. Increasingly unable to meet payouts, pension funds and insurance companies in the US (and in other countries such as the UK) have embraced a ‘return-seeking’ strategy that involves purchasing high-risk/high-return developing country assets (Bonizzi and Kaltenbrunner 2019). Like traditional financial assets, developing countries are treated as ‘a renewed investment opportunity’ for investors interested in ‘high yield’ and ‘international exposure’ (Polwitoon and Tawatnuntachai 2008), a strategy that is aided by the explosion in emerging market economy bond indices (Naqvi 2019). Investors are particularly attracted to local currency sovereign bonds as they offer higher yields, evident in the exploding number of funds that track local currency indices.3 Peripheral currencies have also become a popular financial instrument for speculators, exerting enormous pressures on the exchange rate (White and Samson 2018; Alami 2019). In a post-crisis period marked by international liquidity excess where risk appetite is high, global investors seek peripheral currencies on the expectation of appreciation. In fact, the majority of FX trades today are not related to international trade, or the settlement and purchase of bonds and equities on organised markets, but result from hedging practices by investors to cover risks. Loose monetary conditions in core economies have only encouraged these investment strategies, increasing short-term flows to developing countries.
The growing responsiveness of capital movements to monetary policy at the core heightens the already subordinate status of developing countries in the global economy. A convergence in asset allocation, brought about by the introduction of benchmarks and bond indices, and the domination of the asset management industry by a handful of large players exacerbate the direction of fund flows, heightening the external vulnerability of developing countries (Miyajima and Shim 2014; Arslanalp and Tsuda 2015; Braun 2016; Fichtner, Heemskerk, and Garcia-Bernardo 2017; Wigglesworth and Henderson 2019). Stunted credit creation and intermediation processes from centuries of unequal exchange make these countries structurally dependent on volatile financial flows. On top of exposing their economies to volatility, developing countries also expend vast resources to sustain capital flows, perpetuating their own dependency in the system. I turn to this in the next subsection.
An accommodatory state
One of the central concerns of dependency theory is how the peripheral state manages relations with the centre and with transnational capital. Amin pushed back against the thesis of ‘the withering away of the states’ and maintained that ‘the national state remained in place to serve globalization as it is’ (Amin 2015, 33). At the same time, however, Amin recognised the restrictions on the peripheral state from the ‘neoliberal straitjacket’. The privatisation of public services, the deregulation of the market and inflation-targeting regimes that mandated balanced budgets restricted the state’s fiscal powers. By privileging the interests of capital, neoliberal policies served to enhance the existing subordinate (comprador) status of the peripheral nation state as an instrument of the imperial capitalist class.
The tangible outcomes of a neoliberal agenda, such as privatisation and reduced government spending, tend to eclipse the increasingly active role played by the state in the monetary and financial sphere. Indeed, as states have lost fiscal dominance, they have turned to monetary and financial means to manage the economy (Gabor 2016). Unlike fiscal policy decisions, generally determined by elected legislatures and publicised in national budgets, monetary and exchange rate policy remain the provenance of unelected technical experts, who have vast resources at their disposal. In the context of a rapidly financialising global economy, peripheral states have therefore not retreated but rather increased their interventions on the less visible plane of monetary and exchange rate policy, incurring significant social, economic and fiscal costs.
The resources that developing countries pump into managing monetary and financial stability in an open economy are considerable. Some scholars have characterised these costs as a tribute paid to core states, particularly to the US, to maintain access to global capital markets (Painceira 2009). Here, I highlight two costs that developing countries bear for global financial integration: (1) the accumulation of low-yielding foreign exchange reserves with a high opportunity cost, and (2) the issuing of domestic bonds in sterilisation operations with implications for public debt.
Since the 1997 Asian Financial Crisis, developing countries have made a concerted effort to accumulate foreign exchange reserves to defend their currencies against speculative attacks and to curb volatility in their exchange rates. On the eve of the Asian crisis, experts and international organisations encouraged reserve accumulation as a way for countries to self-insure against future currency crises stemming from volatile capital flows (Feldstein 1999). Given the consequences of past crises, and the absence of an international lender of last resort, governments saw reserve accumulation as ‘the only option to navigate between the Scylla of a financial crisis and the Charybdis of an IMF package’ (Cruz and Walters 2008, 667).4
The adoption of flexible exchange rate regimes in the 1990s alongside less restrictive capital accounts substantially increased the influence of short-term capital flows on currency movements in developing countries, particularly in ECEs. During periods of global liquidity, investors seek ECE assets to profit from the interest rate differential on the expectation of currency appreciation, putting upward pressure on the currency. But in a downturn, ECE assets are the first to get dropped, given their lower liquidity premium, as investors flee to safe assets, triggering a downward spiral of ECE currencies. The extreme volatility in FX markets that this generates spills over into other financial markets and the wider economy, making exchange rate volatility a primary concern for policymakers. Given this exposure and vulnerability to sudden changes in investor sentiment, it is not surprising that peripheral central banks have accumulated an unprecedented volume of FX reserves, leading one scholar to characterise reserve accumulation as ‘one of the most robust empirical regularities in modern international economics’ (Landau 2014).
Reserve accumulation as a strategy is not confined to ECEs that are highly integrated into global financial markets, but also popular in many peripheral countries in Africa, where the volume of reserves held by central banks has on average, at least since 2005, exceeded the amount warranted by macroeconomic fundamentals (Elhiraika and Ndikumana 2007). The scale of this reserve accumulation is evident in Figure 2.
Foreign exchange reserves for sub-Saharan Africa. GDP: gross domestic product.
Data source: International Monetary Fund (IMF) International Financial Statistics and World Economic Outlook.
Like the rest of the developing world, countries in sub-Saharan Africa began accumulating an unprecedented volume of foreign exchange reserves starting in the early 2000s. The region collectively held US$32 billion (2.5% of gross domestic product, GDP) in 2000, and by 2014, on the eve of the taper tantrum, that number stood at US$200 billion (6% of GDP). Part of this reserve build-up was owing to the region’s dependence on commodity exports. Yet central bank documents suggest that since the late 1990s, policymakers in the region have also actively accumulated reserves as self-insurance against volatility in global financial markets. For example, in the 1990s the South African Reserve Bank used foreign currency loans to prop up its FX reserves to increase its intervention capacity in forward markets (Mminele 2013). Today, the bank uses spot market purchases and foreign exchange swaps, funded by both the bank and the National Treasury to accumulate reserves (Ibid.). Similarly, the Central Bank of Kenya and the Central Bank of Nigeria have intervened in foreign exchange markets since the 2000s to prop up their respective currencies (Ndung’u 2001; Blas and Manson 2014; Chijioke 2020).
The accumulation of FX reserves to safeguard national economies imposes significant costs on developing countries. The majority of FX reserves are held in the form of short-term US treasury bills that pay low yields. Estimates for the opportunity cost of holding (excess) foreign assets range from 1% of developing countries’ GDP (2004 estimates) (Rodrik 2006) to 0.96% in 2008, and 1.25% of the GDP (US$214 billion) in 2009 (Gallagher and Shrestha 2012). On top of that, sterilisation operations, a task performed by central banks to counteract domestic expansion in liquidity from foreign reserve management, can contribute to the accumulation of national debt: in order to offset a potential inflationary effect from the purchase of foreign exchange, central banks sell government bonds, central bank bills, and swaps or repurchase agreements (Aizenman and Glick 2008). Furthermore, to induce investors to hold domestic-currency assets, central banks offer high yields on these debt instruments (Calvo, Leiderman, and Reinhart 1993; Reinhart and Reinhart 1998). The scale of reserve accumulation and sterilisation operations is visible in the dramatic expansion in central bank balance sheets since the 1997 Asian crisis.
The resources that developing countries devote to financial integration comports with the long-standing thesis in Marxist political economy that the hoarding of world money, in this instance short-term US treasury bills, is a necessary development for international capital accumulation, and a necessary condition to participate in the global capitalist system (Kaltenbrunner and Painceira 2018). Rodrik observed that resources held in reserve accumulation were ‘a multiple of the budgetary cost of even the most aggressive anti-poverty programs’, and developing countries were ‘paying a very high price to play by the rules of financial globalization’ (Rodrik 2006, 262). In the context of sub-Saharan Africa, the costs are particularly high and worrying. By locking up reserves in low-yield foreign assets, especially in the context of sterilisation, countries incur significant losses resulting from interest rate differentials (Mminele 2013). Furthermore, they miss out on the potential gains from demand-led growth and investments in public infrastructure (Elhiraika and Ndikumana 2007). Maintaining a large stock of reserves can also contribute to a low-growth environment by encouraging overvalued exchange rates (worrying in a time of low trade capacity) that discourage imports and slow investment, growth and economic diversification (Ibid.).
Recent research suggests that central bank reserve operations encourage financialisation of the domestic economy (Kaltenbrunner and Painceira 2018). One way in which this occurs is during sterilisation operations, when the central bank issues liquid instruments, mainly short-term bonds or repos. Financial institutions, primarily banks, use these instruments as collateral to increase their own funding (in short-term debt instruments) (Gabor 2011, 2016; Kaltenbrunner and Painceira 2018). The turn to short-term funding instruments incentivises banks to increase their short-term assets (lending), which is evident in increased bank lending to households and consumption activities relative to industry. Given the mounting evidence that financialisation brings about deindustrialisation (Cruz and Walters 2008) by crippling the productive sector (Durand and Gueuder 2018; G. Epstein 2018; Jayadev, Mason, and Schröder 2018), central bank operations that encourage financialisation should worry policymakers.
In the context of extensive reserve management, the peripheral state may be accurately described as an interventionist and an accommodatory state, one that actively bears risks and facilitates financial accumulation for global capital. The subordinate role of the peripheral state is reinforced by the adoption of financial stability, a mandate advocated by financial experts and international organisations such as the Bank for International Settlements (Bank for International Settlements 2011). It is difficult to contest the necessity of financial stability for economic development. However, instead of extolling the importance of a financial stability mandate, which is the norm in the central banking literature, the focus should be on scrutinising policies that generate financial instability in the first place, such as the liberalisation of capital accounts and the deregulation of domestic financial markets, policies for which there are alternatives (Cruz and Walters 2008). Given the cost of maintaining financial stability, critical inquiry into the sources of financial instability seems to be a more urgent task than advocating the need to maintain financial stability at whatever cost.
Conclusion
Amin’s work, along with that of other dependency theorists, brought a critical perspective to the study of capitalism. His work produced key concepts and ideas that help illuminate contemporary forms of dependency in a financialised global economy. In this article, I have proposed an update to Amin’s concept of ‘imperialist rent’ and fleshed out how the peripheral nation state sustains contemporary dependency, a key concern in Amin’s work.
Dependency theory came of age in a global economy vastly different to the one we live in today. Financial transactions, alongside trade and production, constitute a defining feature of this new economy, behoving us to re-examine and contextualise foundational concepts and ideas in dependency theory. As I show, imperialist rent is no longer restricted to labour arbitrage but also includes financial arbitrage. This discussion foregrounds the logic of financial accumulation, which operates on exploiting difference. Past relations of extraction and exploitation ensure that capital prices peripheral assets as less valuable and riskier than assets offered in the triad. In a global system that is deeply hierarchical, financial accumulation flourishes as global investors exploit differences in the pricing of financial assets. Lower interest rates in the triad and the development of benchmarks and indices render financial accumulation from developing country assets more attractive and feasible. This in turn increases the external vulnerability of the periphery and their monetary and financial dependence on the triad.
Peripheral states are not only subordinate but also accommodatory towards global capital. One of Amin’s theses was that the peripheral national state played an instrumental role in sustaining dependent relations in the global economy. I flesh out the contours of this role in the new economy by focusing on the activities of peripheral central banks. To protect the exchange rate and maintain financial stability, central banks accumulate troves of foreign exchange, mainly US treasury bills, for which they earn very little, imposing large opportunity costs on developing countries. Furthermore, central banks conduct sterilisation operations in their management of liquidity, a process that incurs debt on central bank balance sheets. Finally, these accommodations are justified in the name of financial stability and credit intermediation. Yet the volatility of ‘credit intermediation’ flows and the long-run effects of stabilisation policies demand a critical inquiry into these justifications. The task is particularly urgent as expert decision-making, often insulated from democratic accountability, dominates the financial sphere. With little democratic accountability, and financial stability as a key mandate, central banks in peripheral states, by default, serve the interest of a global capitalist class, helping to maintain exploitative and subordinate relations in the global economy.
Dependency theory provides a critical perspective on which to build a theory about financialisation on a global scale. As I show in this paper, the logic of financial accumulation is a useful bridge to weave together critical insights from dependency theory with the financialisation literature. This research agenda highlights the need to look beyond the fiscal sphere to the monetary and financial sphere in order to understand state interventions. Furthermore, it opens the door to studying how late capitalism facilitates exploitation and extraction beyond conventional processes of production and trade.