Abstract

An examination of the historical record reveals distinct cycles in financial crises. There are periods characterized by a 'contagion' effect, where financial crises swiftly traverse borders and sectors. Conversely, there are also periods typified by 'containment,' where the financial system adopts measures to prevent the spread of crises, keeping markets and nations separate. This paper contends that these cycles in financial crises are intricately linked to shifts in the international power structure.

The historical record of the international power structure over the past 350 years discloses cycles featuring periods of a dominant nation-state exercising leadership and alternating with 'struggle for power' phases when no single state holds dominance, and many nations share similar levels of power.

The aim of this paper is to establish the correlation between these two distinct cycles: hegemony is associated with 'isolation' periods, while 'contagion' tends to occur during phases of 'struggle for power'. In consequence, during periods of 'struggle for power', financial contagion tends to occur, whereas hegemony fosters containment. The second part of this paper delves into an explanation of this correlation, grounded in theories concerning a common good of the foreign reserves. This paper will show that in periods of crisis, containment results from the implementation of international global policies that prevent the propagation of crises in periods of an hegemonic power.

Keywords: financial crises, contagion, struggle for power, hegemony, national sovereignty, international power structure, foreign reserves