Globalization is often understood as a zero-sum game: what global markets gain, nation states lose (e.g., see Saskia Sassen, “Territory and Territoriality in the Global Economy,” International Sociology 15(2): 2000). In her book Offshore Finance and State Power, Andrea Binder shows the limits of this perspective. She provides a rich and fascinating story about the conscious creation of markets that were explicitly designed by states to provide a space beyond their own territorial jurisdiction. In discussing the ownership and use of these markets in Britain, Germany, Brazil, and Mexico, she demonstrates that offshore finance is not the simple eviction of government control. Quite on the contrary, states can benefit from these markets, as they are an additional space of money creation and thus provide desperately needed and largely invisible liquidity.

This is surprising to most newspaper readers, who know about offshore markets through the major leaks that offered a glimpse into a world of tax evasion and money laundering—Pandora, Paradise, or Panama—where elected officials are merely pawns. Binder counters such a superficial view and shows that offshore finance has two components: the tax planning services to non-residents (“tax havens”) and the creation of US-dollar-denominated credit by a country’s banks to nonresidents. This second dimension, the offshore money creation of Eurodollars (or similar currencies), is central to the international financial system by providing global liquidity. The two functions—tax planning and banking—are two sides of the same coin and must be studied jointly when evaluating why states allow for or expand offshore finance. Binder proposes to study this by adopting “the money view.”

The money view puts into focus the debtor–creditor relationships and thus explains the historic connections between governments and offshore finance. In her carefully researched case studies, Binder showcases how political leaders were rarely playing second fiddle to uncontrollable external forces. Rather, the gigantic offshore world has been consciously created and employed to follow domestic political agendas. To begin with, offshore credit money comes at better conditions than in domestic or foreign onshore economies and thus provides preferential liquidity. Second, and more importantly, Binder demonstrates the “politics of the invisible” that allow the state to simultaneously pursue contradictory economic policies without accountability. For example, they can impose strict banking regulations or high corporate tax rates, while providing an alternative space with much lighter conditions. Binder’s theoretical ambition is to gauge the elusive concept of “state power.” She underlines both the agency of governments in the creation and use of the offshore world and the loss of control that resulted from the sheer size of these markets, in particular in moments of crisis.

Binder’s theoretical argument comes to life in the four insightful studies of Great Britain, Germany, Brazil, and Mexico. Great Britain, the heartland of offshore finance, managed to increase its influence far beyond its territory, via financial and accounting innovation agreed upon in the early years of the Bretton Woods post-war order and fueled in the late twentieth century. The City of London’s privileges were exposed during the 2008 financial crisis, with bailouts that laid bare the societal and distributional consequences of the offshore bank bargain, no doubt contributing to the results of the Brexit referendum.

Similarly, the case of Germany shows how offshore finance enables the pursuit of contradictory social policies by being a high tax country at home while simultaneously allowing an exclusive set of actors to reduce their tax burden and create money offshore. However, the institutional setup of bank ownership structures and the specific welfare system tied to social security contributions allowed for high resilience after the financial meltdown of 2007–2008 and established a system where benefits could be reaped domestically, and risks were mostly externalized.

Brazil has also put a lot of emphasis on ringfencing its economy from the volatilities of the offshore market, following the oil crisis of the 1980s and subsequent state default due to excessive exposure to offshore finance. The preferential liquidity stemming from the pronounced involvement with offshore financial services aided the Brazilian state in overcoming a historically central trilemma: not taxing the rural elite and consequently having weak central power, taxing rural wealth but then losing its political support, or financing deficits via inflation and risking popular discontent.

A fascinating final case is Mexico, a country that has almost fully retreated from offshore markets. Having initially used the offshore financial instruments to finance the economic development and patronage system of the PRI, the government ultimately failed to shield its economy from the external volatilities of the oil crisis. The costly social conflict arising from taxpayers bailing out the state and banks as a lesson from the past, coupled with easy access to US dollars via NAFTA, and far-reaching opportunities for money laundering and tax evasion presented by the large domestic informal sector, led to Mexico ultimately disconnecting itself from the world of offshore finance.

Crises thus play a central role in Binder’s analysis. She shows that they are an inevitable consequence of unrealistically high credit money created offshore and the tendency toward broken promises of repayment due to a missing lender of last resort. Moreover, crises take away one of the central characteristics of offshore finance: the politics of invisibility. As soon as the distributional effects of offshore finance become apparent, the practice gets politically contested. This is where the important ability of institutions to mitigate comes into play. Such measures might include switching the tax regime from direct to indirect taxation, multilateral initiatives against offshore tax planning, limiting the number of banks allowed to participate in offshore banking domestically, or back-up systems consisting of foreign reserves and central bank swaps. Consequently, Binder argues that unregulated offshore finance is not necessarily a product of governmental incapacity but rather conscious political will.

Binder achieves several important tasks with her book. First, she demonstrates how “money creates states and states create money” in a global economy (p. 13). Second, she illustrates the complex relationship between global markets and state power: globalization does not necessarily weaken domestic agency, and what we understand as a global phenomenon can be deeply domestic. Third, she shifts our focus to the machine room of the international financial system, arguing that we must understand the mechanics and the plumbing if we want to dissect power in global markets.

In two areas, Binder leaves the reader with a set of open questions. For comparativists, it would be helpful to spell out a theory of the different development paths in the four countries studied. When should we expect countries to indulge in, mitigate, or guard themselves against offshore markets? The Latin American comparison between Brazil and Mexico highlights, for example, that both had to grapple with state default and have access to large informal sectors of the economy, and yet they chose distinct paths. Does this indicate that the distribution of wealth and power within a country is the key explanatory factor, as seems to be the case in Brazil, or the geopolitical environment, such as NAFTA for Mexico?

For international political economists, the most striking and probably also controversial insight concerns international monetary power and the hegemony of the United States. Contrary to the traditional understanding that sees the strength of the dollar as an economic and political resource of the United States (e.g. see Benjamin Cohen, Currency Power: Understanding Monetary Rivalry, 2015), Binder shows that the United States only has indirect rule over the dollars circulating in the world economy. As the emission of dollar-denominated loans is in the hands of foreign banks, the United States has effectively “outsourced its empire” to these private actors (see Andrea Binder, “Outsourcing Empire: International Monetary Power in the Age of Offshore Finance,” International Studies Quarterly, 68(4), 2024). This allows for a greater reach of American influence, but also less central control, as these banks are governed most often by English law. The critical question is, therefore, what will be the result of the friction between United States and British control in the offshore universe, in particular in times of crisis?