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How much a dollar cost: Currency hierarchy as a driver of ecologically unequal exchange

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  • Olk, Christopher
Abstract
Asymmetric transfers of biophysical resources from the Global South to the North are a key obstacle to sustainable development. The underlying causal drivers of this ‘ecologically unequal exchange’ are not well understood. This paper accounts for the causal role of hierarchy between currencies as one driver of ecologically unequal exchange. Drawing on dependency theory, I propose testable hypotheses that explain why countries that issue internationally acceptable currencies create net inflows of embodied labour, land, energy, raw materials, and carbon from countries whose currencies lack international acceptability: Countries with lower-ranking currencies face higher interest rates, which constrain their policy space, drive income outflows, and necessitate resource exports. Such countries also tend to have lower price levels (measured as the ratio between exchange rates and purchasing power parity rates) because their currencies are not demanded internationally, resulting in reduced dollar income per exported resource. To test these hypotheses, I use a novel categorical operationalization of currency hierarchy. I compare different observable correlations to the theoretical correlations implied by the proposed hypotheses, and test multiple regression models against cross-country data. Overall, the results are consistent with the hypotheses. Considering alternative explanations, the conclusion seems justified that currency hierarchy is a significant driver of ecologically unequal exchange, and that this mechanism operates specifically through cross-country divergences in interest rates and exchange rates. In short, the monetary cost of a dollar impacts the biophysical cost of a dollar.

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  • Olk, Christopher, 2024. "How much a dollar cost: Currency hierarchy as a driver of ecologically unequal exchange," World Development, Elsevier, vol. 180(C).
    • Handle: RePEc:eee:wdevel:v:180:y:2024:i:c:s0305750x24001190
    DOI: 10.1016/j.worlddev.2024.106649
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