The Rise and Fall of the Dollar, or When did the Dollar Replace Sterling as the Leading Reserve Currency?
AbstractWe present new evidence on the currency composition of foreign exchange reserves in the 1920s and 1930s. Contrary to the presumption that the pound sterling continued to dominate the U.S. dollar in central bank reserves until after World War II, we show that the dollar first overtook sterling in the mid-1920s. This suggests that the network effects thought to lend inertia to international currency status and to create incumbency advantages for the dominant international currency do not apply in the reserve currency domain. Our new evidence is similarly incompatible with the notion that there is only room in the market for one dominant reserve currency at a point in time. Our findings have important implications for our understanding of interwar monetary history but also for the prospects of the dollar and the euro as reserve currencies.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6869.
Date of creation: Jun 2008
Date of revision:
Contact details of provider:
Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
Other versions of this item:
- Eichengreen, Barry & Flandreau, Marc, 2009. "The rise and fall of the dollar (or when did the dollar replace sterling as the leading reserve currency?)," European Review of Economic History, Cambridge University Press, vol. 13(03), pages 377-411, December.
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-06-21 (All new papers)
- NEP-CBA-2008-06-21 (Central Banking)
- NEP-FMK-2008-06-21 (Financial Markets)
- NEP-HIS-2008-06-21 (Business, Economic & Financial History)
- NEP-IFN-2008-06-21 (International Finance)
- NEP-MON-2008-06-21 (Monetary Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- Chinn, Menzie & Frankel, Jeffrey, 2008. "The Euro May over the Next 15 Years Surpass the Dollar as Leading International Currency," Working Paper Series rwp08-016, Harvard University, John F. Kennedy School of Government.
- Barry Eichengreen, 2006.
"Global Imbalances and the Lessons of Bretton Woods,"
MIT Press Books,
The MIT Press,
edition 1, volume 1, number 0262050846, December.
- Barry Eichengreen, 2004. "Global Imbalances and the Lessons of Bretton Woods," Economie Internationale, CEPII research center, issue 100, pages 39-50.
- Barry Eichengreen, 2005. "Global imbalances and the lessons of Bretton Woods," Proceedings, Federal Reserve Bank of San Francisco, issue Feb.
- Barry Eichengreen, 2010. "Global Imbalances and the Lessons of Bretton Woods," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262514141, December.
- Barry Eichengreen, 2004. "Global Imbalances and the Lessons of Bretton Woods," NBER Working Papers 10497, National Bureau of Economic Research, Inc.
- Paul R. Krugman, 1984. "The International Role of the Dollar: Theory and Prospect," NBER Chapters, in: Exchange Rate Theory and Practice, pages 261-278 National Bureau of Economic Research, Inc.
- Flandreau, Marc & Sussman, Nathan, 2004. "Old Sins: Exchange Rate Clauses and European Foreign Lending in the 19th Century," CEPR Discussion Papers 4248, C.E.P.R. Discussion Papers.
- Mundell, Robert A., 1999.
"A Reconsideration of the Twentieth Century,"
Nobel Prize in Economics documents
1999-5, Nobel Prize Committee.
- Accominotti, Olivier, 2009. "The sterling trap: foreign reserves management at the Bank of France, 1928–1936," European Review of Economic History, Cambridge University Press, vol. 13(03), pages 349-376, December.
- Barry J. Eichengreen & Jeffrey Sachs, 1984.
"Exchange Rates and Economic Recovery in the 1930s,"
NBER Working Papers
1498, National Bureau of Economic Research, Inc.
- Peter Temin, 1991. "Lessons from the Great Depression," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262700441, December.
- Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 927-54, August.
- Choudhri, Ehsan U & Kochin, Levis A, 1980. "The Exchange Rate and the International Transmission of Business Cycle Disturbances: Some Evidence from the Great Depression," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 12(4), pages 565-74, November.
- Eichengreen, Barry & Sachs, Jeffrey, 1986. "Competitive devaluation and the Great Depression : A theoretical reassessment," Economics Letters, Elsevier, vol. 22(1), pages 67-71.
- FFF1Alexander A. NNN1Weinreb, 2003. "Change and instability," Demographic Research Special Collections, Max Planck Institute for Demographic Research, Rostock, Germany, vol. 1(12), pages 373-396, September.
Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Der langsame Abschied vom Dollar
by Tobias Straumann in Never mind the markets on 2014-01-27 04:00:42
- To RMB or not to RMB? Lessons from Currency History
by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets on 2014-08-18 10:42:16
- Ignazio Angeloni & Agnès Bénassy-Quéré & Benjamin Carton & Zsolt Darvas & Christophe Destais & Ludovic Gauvin & Jean Pisani-Ferry & André Sapir & Shahin Vallée, 2011.
"Global currencies for tomorrow: A European perspective,"
European Economy - Economic Papers
444, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
- Ignazio Angeloni & AgnÃ¨s BÃ©nassy-QuÃ©rÃ© & Benjamin Carton & Christophe Destais & Zsolt Darvas & Jean Pisani-Ferry & AndrÃ© Sapir & Shahin VallÃ©e, . "Global currencies for tomorrow: a European perspective," Blueprints, Bruegel, number 592, December.
- André Sapir & Jean Pisani-Ferry, 2011. "Global Currencies for Tomorrow: A European Perspective," ULB Institutional Repository 2013/174278, ULB -- Universite Libre de Bruxelles.
- Andreas Steiner, 2013. "A Tale of Two Deficits: Public Budget Balance of Reserve Currency Countries," Working Papers 97, Institute of Empirical Economic Research.
- Barry Eichengreen & Marc Flandreau, 2012.
"The Federal Reserve, the Bank of England, and the Rise of the Dollar as an International Currency, 1914–1939,"
Open Economies Review,
Springer, vol. 23(1), pages 57-87, February.
- Barry Eichengreen, Marc Flandreau, 2010. "The Federal Reserve, the Bank of England, and the Rise of the Dollar as an International Currency, 1914-1939," IHEID Working Papers 16-2010, Economics Section, The Graduate Institute of International Studies.
- Albrecht Ritschl & Samad Salferaz, 2010.
"Crisis?: What crisis?: currency vs. banking in the financial crisis of 1931,"
LSE Research Online Documents on Economics
28726, London School of Economics and Political Science, LSE Library.
- Albrecht Ritschl & Samad Sarferaz, 2010. "Crisis? What Crisis? Currency vs. Banking in the Financial Crisis of 1931," SFB 649 Discussion Papers SFB649DP2010-014, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
- Albrecht Ritschl & Samad Salferaz, 2010. "Crisis? What Crisis? Currency vs. Banking in the Financial Crisis of 1931," CEP Discussion Papers dp0977, Centre for Economic Performance, LSE.
- Ritschl, Albrecht & Sarferaz, Samad, 2009. "Crisis? What Crisis? Currency vs. Banking in the Financial Crisis of 1931," CEPR Discussion Papers 7610, C.E.P.R. Discussion Papers.
- Sheng, Andrew & Kwek, Kian-Teng & Cho, Cho-Wai, 2009. "A tale of Asian exchange rate management: Romance of the three currencies," Journal of Asian Economics, Elsevier, vol. 20(5), pages 519-535, September.
- Ignazio Angeloni & AndrÃ© Sapir, 2011. "The international monetary system is changing: what opportunities and risks for the euro?," Working Papers 632, Bruegel.
- 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.
- Hale, Galina & Jones, Peter & Spiegel, Mark M., 2014. "The rise in home currency issuance," Working Paper Series 2014-19, Federal Reserve Bank of San Francisco.
- Barry, Eichengreen, 2011. "The renminbi as an international currency," Journal of Policy Modeling, Elsevier, vol. 33(5), pages 723-730, September.
- Scott Andrew Urban, 2009. "The Name of the Rose: Classifying 1930s Exchange-Rate Regimes," Oxford University Economic and Social History Series _076, Economics Group, Nuffield College, University of Oxford.
- Eichengreen, Barry & Mehl, Arnaud & Chiţu, Livia, 2012.
"When did the dollar overtake sterling as the leading international currency? Evidence from the bond markets,"
Working Paper Series
1433, European Central Bank.
- Livia Chitu & Barry Eichengreen & Arnaud J. Mehl, 2012. "When did the dollar overtake sterling as the leading international currency? Evidence from the bond markets," NBER Working Papers 18097, National Bureau of Economic Research, Inc.
- Piffaretti, Nadia F., 2009. "Reshaping the international monetary architecture : lessons from Keynes'plan," Policy Research Working Paper Series 5034, The World Bank.
- Piffaretti, Nadia F., 2008. "Reshaping the International Monetary Architecture and Addressing Global Imbalances: Lessons from the Keynes Plan," MPRA Paper 12165, University Library of Munich, Germany.
- Barry Eichengreen & Marc Flandreau, 2010. "The Federal Reserve, the Bank of England and the rise of the dollar as an international currency, 1914-39," BIS Working Papers 328, Bank for International Settlements.
- Scott Andrew Urban, 2009. "The Name of the Rose: Classifying 1930s Exchange-Rate Regimes," Economics Series Working Papers Paper 76, University of Oxford, Department of Economics.
- Shahin VallÃ©e, 2012. "The internationalisation path of the renminbi," Working Papers 715, Bruegel.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.