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rictly national and effectively insular - each currency sanctioned by the sovereign state and exclusively used within a country's territorial frontiers for all standard monetary purposes (medium of exchange, store of value, unit of account). In fact, as I have argued elsewhere (Cohen 1998), nothing could be further from present-day reality. Intense cross-border competition among currencies already exists in many parts of the world. In that context, the advent of electronic money can hardly be considered anomalous.
At issue is what I call the geography of money: the broad configuration of global currency space. Over the centuries monetary geography has changed repeatedly under the influence of economic, technological, and political developments. Today it is changing yet again in ways still not fully appreciated.
Conventional understandings
The conventional understanding of monetary geography is quite simple. Currency domains are assumed to coincide precisely with the political frontiers of nation-states, with few exceptions, and governments are believed to exercise exclusive control over the issue and circulation of money within their own territory. At the heart of this understanding, reflecting contemporary norms of political legitimacy, is the principle of absolute monetary sovereignty. Currencies are and, it is thought, should be strictly territorial -- One Country/One Currency. Money is properly the monopoly of the state.
It is easy to see the practical advantages of a territorial currency. Within any given country, network externalities will be maximized when there is but a single money in circulation. It is also easy to see why a monetary monopoly might be highly prized by governments. Genuine power resides in the command that money represents. In fiscal terms a territorial currency offers a potentially rich source of revenue, seigniorage, to underwrite public expenditures - an advantage that is of particular value in moments of crisis or threat to national security. Politically, it embodies a potent political symbol to promote a sense of national identity as well as a practical means to insulate the nation from foreign influence or constraint. Most importantly, in the opinion of most specialists, a monetary monopoly provides a powerful instrument to help manage the macroeconomic performance of the economy. That is monetary policy in the traditional sense of the term and the main focus of this article.
What is often overlooked, however, is how historically exceptional all this is. In practice, territorial currencies have existed for less than two centuries. Prior to the 1800s no government even thought to claim a formal monopoly over the issue and use of money within its political domain, and macroEconomics had not even yet been invented. Cross-border circulation of currencies was not only accepted but widespread, monetary policy as such did not exist, and private monies were commonplace. As Helleiner (1997) has perceptively reminded us, the notion of absolute monetary sovereignty really began to emerge only in the nineteenth century with the formal consolidation of the powers of the nation-state in Europe and later elsewhere. Monetary instruments were standardized, circulation of foreign monies was banned, and legal-tender status was reserved to the national currency alone. The era of territorial money reached its apogee in the middle of the twentieth century with the invention of exchange and capit