The Foreign Affairs of the Federal Reserve.

• Author: Conti-Brown, Peter

1. INTRODUCTION

   The contours of foreign relations law have been contested since the founding, when American alliances with European powers created rifts between a new presidency and an increasingly factionalized legislature. (1) These contests have not stopped since. Whether in military conflicts like the wars in Afghanistan and Iraq, diplomatic initiatives like the Joint Comprehensive Plan of Action for Iran's nuclear capabilities, (2) or executive agreements like the Paris Agreement on climate change, (3) the paradigm has been, as Edward Corwin famously put it in 1955, a constitutional "invitation to struggle" between the executive and legislative branch, with the judiciary playing the role of cautious referee. (4) Congress can protest or forestall or sometimes control foreign policy programs implemented by the executive branch, in the manner of a political dispute.

   Corwin's staging of the constitutional play is incomplete. While Congress and the president continue to fight in political and judicial fora over foreign policy, they are not the only players in the game. In this Article we profile other actors--focusing on one in particular--who contributes to American foreign policy independent of the executive, legislature, and courts.

   The actor on which we focus is the U.S. Federal Reserve System (Fed), the American central bank. The Fed has practiced its own brand of foreign relations since its 1913 legislative founding. Throughout its existence, it has kept up relations with its foreign counterparts, in many ways uncoordinated with either Congress or the presidential administrations, forging relationships, traditions, legal commitments, and even building formal organizational institutions with counterparts abroad. In other cases, it has snubbed foreign officials who have objected that its policies are inconsistent with their place as allies of the country.

   The Fed's international connections are not unique; rather it is the most extreme and important version of a phenomenon that can be observed at almost every federal agency outside the executive branch--almost every agency now has an international relations office and belongs to an organization of regulators that cross national boundaries. (5) We call this phenomenon "regulatory diplomacy."

   Regulatory diplomacy is ubiquitous. As we document in the appendix, 13 of the 18 agencies designated as independent by Congress have international affairs offices, including the Nuclear Regulatory Commission, the Office of the Comptroller of the Currency, and the Postal Regulatory Commission. (6) The former chair of the Securities and Exchange Commission, reported that international work "comprise[d] over half of [his] time and responsibilities." (7)

   The D.C. Circuit has nervously observed that "an independent agency[] is a responsible governmental agency and will surely take into account ... any foreign policy concerns communicated to it by the Department of State." (8) But that is not always clearly the case. ICANN, the Internet Corporation for Assigned Names and Numbers, assigns domain names on the Internet, which in turn makes it an authority with worldwide power. (9) Created by the Department of Commerce, ICANN is now much less responsive to it, a fact that some observers have celebrated, and others have treated as cause for concern. (10) The Federal Communications Commission has gone its own way regarding foreign access to American infrastructure, which it can condition on reciprocal access-rendering some of its decisions out of step with the views of the departments within the executive branch. (11)

   These institutions, and the agreements that they conclude, are at the forefront of some of the country's most prominent foreign initiatives. They come at a cost to the power of Congress, as regulators conclude their own international arrangements, and in so doing dispense with the advice and consent required by treaty ratification--something the Senate has been increasingly reluctant to give. (12)

   By the same token, the president's usual channels for the realization of foreign policy--the State Department, the United States Trade Representative, and the national security agencies--have been undermined by the emergence of widespread regulatory diplomacy. Some might call it, at its most controversial, an example of the "deep state" at work. (13) The current president has complained about this deep state; he is, according to CNN, "now officially pushing a more sinister conspiracy theory--the so-called deep state--the idea that an entrenched bureaucracy is working to delegitimize him." (14)

   Regulatory efforts like the Paris climate change agreement, (15) standards for internet domain names, (16) and the global effort to tackle money laundering, (17) to name a few, are being pursued by American regulators, and not its diplomats. Sometimes this work is coordinated with the state's diplomatic apparatus, but sometimes it is entirely independent of that apparatus.

   The Fed is the foremost practitioner of regulatory diplomacy in the contemporary administrative state; in this Article we use it to exemplify the phenomenon. As we will see, the Fed has the power to disrupt foreign economies, respond to financial contagion that crosses borders, and favor or disfavor allies with extraordinary interventions in the financial systems of other countries. Moreover, while the Fed's primary roles as regulator and domestic guarantor of the currency have been studied, (18) its global reach has, for the most part, been overlooked. (19) Two features define the Fed's unique foreign relations policy. First, there is a tension between two themes of central bank relations--nationalism and cosmopolitanism. Second, there is a tension between its willingness to coordinate with other parts of government and its independence from the political branches.

   The two tensions are not unrelated. At various points in history--including the present--the Fed shows significantly greater tolerance for a globalized view of its functions than other parts of government. This cosmopolitanism is particularly evident in matters of regulatory cooperation, where the Fed increasingly supervises the financial industry in lockstep with the Bank of England, the European Central Bank, and other foreign institutions. (20) Perhaps for these reasons, the vice-chair of the House Financial Services Committee on January 31, 2017, protested the Fed's continued participation in "international forums on financial regulation," and pleaded with the agency to "cease all attempts to negotiate binding standards burdening American business." (21) President Trump's historic decision not to reappoint Fed Chair Janet Yellen may also have been influenced by the Fed's regulatory diplomacy, as House Republicans stood in steadfast opposition to her candidacy in part on this basis. (22)

   The more nationalistic vein of the Fed's foreign policy also runs deep, back to its founding, where it was created not only to mimic the Bank of England, but also to beat it, and create a global currency of last resort. (23) The idea of becoming an international playmaker for U.S. interests has thus been baked into the Fed's institutional DNA. Its monetary policy decisions have been made mostly with attention to the effects on the domestic economy, much to the frustration of central bankers in the developing world, who would like the Fed to take a more global perspective.

   It should not be surprising that the Fed occasionally flexes nationalist muscles when pursuing its legislative goals, given Congress's instructions that, when it comes to monetary policy, it focus on domestic employment and inflation. (24) What is more striking is how easily the Fed switches between two institutional perspectives--here cosmopolitan, there nationalist--when it comes to the art of foreign relations. As a substantive matter, these twin institutional impulses, as ubiquitous as they are in the Fed's history, make the Fed's foreign policy difficult to characterize as consistent when the same central bankers, in the same month, and with the same foreign counterparties, insist on both cooperation and national isolation.

   This Article offers historical and contemporary evidence to support this claim. The Fed has, since World War II, destabilized financing of the Korean War, complicated the president's relationships with Latin American allies during the 1980s and 1990s, and managed the currency after the 2008 crisis in ways that invited China, Brazil, and India to accuse the United States of engaging in strategic currency manipulation. (25) In other cases, as in the government's response to the financial crisis, the Fed has pursued its foreign relations--most notably through the extension of so-called central bank swap lines--that has operated all but beyond its legal authority, and has only garnered some, but not lots, of criticism from Congress. (26)

   On the other hand, the Fed has worked hand in glove with the Treasury Department in both the Fed's response to the global financial crisis and its treatment of the East Asian and Latin American financial crises of the 1990s. But these incursions into the global order often occur with minimal coordination with the executive branch. Often the Fed is walking its own path, "tussl[ing]" with the Secretary of the Treasury even at the height of the President's authority to direct responses to crises. (27) It is telling, for example, that it was Ben Bernanke who was Time's Person of the Year for 2009, not Barack Obama; that Alan Greenspan was the Chairman of '[t]he Committee to Save the World," not Bill Clinton. (28)

   The story of the Fed's foreign policy independence is consistent with recent scholarship underscoring the diversity of voices in the executive branch. Following Kenneth Shepsle's famous recharacterization of Congress, scholars like Cass Sunstein and

   Jennifer Nou have argued that the executive is a they, not an it. (29) They...