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al controls and the emergence of activist central banks.
Since World War II, by contrast, the tide has clearly reversed. The trend today, quite decisively, is back away from monetary insularity, as exchange and capital controls have gradually fallen out of favor. Increasingly, we see greater and greater direct competition among currencies, regardless of the preferences of governments that would still wish to maintain an independent monetary policy. Money is once again becoming deterritorialized, much as in the centuries prior to the era of territorial currency, making conventional understandings of monetary geography increasingly obsolete.
Currency deterritorialization
Currency deterritorialization is part and parcel of the accelerating globalization of world economic affairs. Driven by deregulation as well as the pressures of competition and technological innovation, financial and monetary systems have become increasingly integrated, effectively broadening the array of currency choice for many transactors and investors. Despite government efforts to preserve traditional monetary monopolies, currencies now compete directly for market confidence and allegiance. As a result, monetary domains today diverge more and more sharply from the legal jurisdictions of states and are defined more by the networks of market actors that use them than by the territorial frontiers of the governments that issue them.
Leading the process of deterritorialization are a few select monies - including, most prominently, the U.S. dollar, the Deutschmark (the DM, now being succeeded by the euro), and the Japanese yen -- which have come to be employed widely outside their country of issue for transactions either between nations or within foreign states. The former is conventionally referred to as "international" currency use (or currency "internationalization"); the latter is described by the term "currency substitution," involving domestic circulation of foreign banknotes as well as local holdings of foreign-currency deposits, and can be referred to as "foreign-domestic use." Both currency internationalization (CI) and currency substitution (CS) are the product of intense market rivalry -- a kind of Darwinian process of natural selection, driven by the powerful force of demand. Reciprocally, an even larger number of monies now routinely face growing competition at home from currencies originating abroad.
The evidence of accelerating cross-border competition is unmistakable (Cohen 1998: ch. 5). The clearest signal of the rapid growth of CI is sent by the global foreign-exchange market where, according to the Bank for International Settlements (1999), average daily turnover has accelerated from $590 billion in 1989 (the first year for which such data are available) to $1.5 trillion in 1998 -- a rate of increase in excess of 25 percent per annum. Even allowing for the fact that much of this activity is accounted for by inter-dealer trading, the pace of expansion is impressive. The dollar is the most favored vehicle for currency exchange worldwide, appearing on one side or the other of some 87 percent of all transactions in 1998 (little changed from its 90 percent share in 1989). The DM appeared in 30 percent of transactions and the yen in 21 percent. The dollar is also the most favored vehicle for the invoicing of international trade, where the greenback has been estimated to account for near