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The Federal Reserve, the Bank of England and the rise of the dollar as an international currency, 1914-39

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Author Info

  • Barry Eichengreen
  • Marc Flandreau

Abstract

This paper provides new evidence on the rise of the dollar as an international currency, focusing on its role in the conduct of trade and the provision of trade credit. We show that the shift to the dollar occurred much earlier than conventionally supposed: during and immediately after World War I. Not just market forces but also policy support - the Fed in its role as market maker - was important for the dollar's overtaking of sterling as the leading international currency. On balance, this experience challenges the popular notion of international currency status as being determined mainly by market size. It suggests that the popular image of strongly increasing returns and pervasive network externalities leaving room for only one monetary technology is misleading.

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Bibliographic Info

Paper provided by Bank for International Settlements in its series BIS Working Papers with number 328.

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Length: 45 pages
Date of creation: Dec 2010
Date of revision:
Handle: RePEc:bis:biswps:328

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Related research

Keywords: foreign exchange reserves; network externalities; path dependency; money markets;

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References

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  1. Battilossi, Stefano, 2006. "The determinants of multinational banking during the first globalisation 1880 1914," European Review of Economic History, Cambridge University Press, vol. 10(03), pages 361-388, December.
  2. Gino Cattani & Adrian E. Tschoegl, 2002. "An Evolutionary View of Internationalization: Chase Manhattan Bank, 1917 to 1996," Center for Financial Institutions Working Papers 02-37, Wharton School Center for Financial Institutions, University of Pennsylvania.
  3. Flandreau, Marc & Jobst, Clemens, 2005. "The Ties that Divide. A Network Analysis of the International Monetary System," CEPR Discussion Papers 5129, C.E.P.R. Discussion Papers.
  4. Eichengreen, Barry & Flandreau, Marc, 2008. "The Rise and Fall of the Dollar, or When did the Dollar Replace Sterling as the Leading Reserve Currency?," CEPR Discussion Papers 6869, C.E.P.R. Discussion Papers.
  5. Moulton, Brent R, 1990. "An Illustration of a Pitfall in Estimating the Effects of Aggregate Variables on Micro Unit," The Review of Economics and Statistics, MIT Press, vol. 72(2), pages 334-38, May.
  6. Menzie D. Chinn & Jeffrey A. Frankel, 2008. "The Euro May Over the Next 15 Years Surpass the Dollar as Leading International Currency," NBER Working Papers 13909, National Bureau of Economic Research, Inc.
  7. Ricardo Hausmann & Ugo Panizza, 2011. "Redemption or Abstinence? Original Sin, Currency Mismatches and Counter Cyclical Policies in the New Millennium," Journal of Globalization and Development, De Gruyter, vol. 2(1), pages 4.
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Citations

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Cited by:
  1. Ignazio Angeloni & André Sapir, 2011. "The international monetary system is changing: what opportunities and risks for the euro?," Working Papers 632, Bruegel.
  2. Agnès Bénassy-Quéré & Jean Pisani-Ferry, 2011. "Quel système monétaire international pour une économie mondiale en mutation rapide ?," Working Papers 2011-04, CEPII research center.
  3. Eric Helleiner & Anton Malkin, 2012. "Sectoral Interests and Global Money: Renminbi, Dollars and the Domestic Foundations of International Currency Policy," Open Economies Review, Springer, vol. 23(1), pages 33-55, February.
  4. Benjamin Cohen, 2012. "The Benefits and Costs of an International Currency: Getting the Calculus Right," Open Economies Review, Springer, vol. 23(1), pages 13-31, February.
  5. Ignazio Angeloni & Agnès Bénassy-Quéré & Benjamin Carton & Christophe Destais & Zsolt Darvas & Jean Pisani-Ferry & André Sapir & Shahin Vallée, . "Global currencies for tomorrow: a European perspective," Blueprints, Bruegel, number 592, 02.
  6. Zhang, Cathy, 2013. "An Information-Based Theory of International Currency," MPRA Paper 42114, University Library of Munich, Germany.
  7. Prasad, Eswar & Ye, Lei (Sandy), 2012. "The Renminbi's Role in the Global Monetary System," IZA Discussion Papers 6335, Institute for the Study of Labor (IZA).

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