Did the Structure of Trade and Foreign Debt Affect Reserve Currency Composition? Evidence form Interwar Japan
AbstractHistorical experience is often invoked in the modern debate on competition among reserve currencies, yet little is known about quantitative aspects or institutional features of reserve management. By drawing on newly obtained data on foreign exchange reserves, especially those broken down by currency, this paper explores the competition between the British pound sterling and the U.S. dollar for the status of leading reserve currency in Japan during the interwar period. We find that competition between these two currencies remained undecided and that their relative status alternated repeatedly. Historical materials and the results of econometric analysis suggest that the key factors explaining a choice of reserve currencies are trade volumes and the currency denomination of external debt. The latter criteria supported maintaining sterlingfs status as a reserve currency for the interwar period, reflecting its considerable share in debt service generated through issues that had been launched when London was the sole international market. The stability of potential reserve currencies is shown to be crucial as well. We also find evidence of institutional factors, which include taxation, foreign exchange controls, and restrictions on financial activities.
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Bibliographic InfoPaper provided by Institute for Monetary and Economic Studies, Bank of Japan in its series IMES Discussion Paper Series with number 09-E-15.
Date of creation: Jun 2009
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Foreign Exchange Reserves; Gold Exchange Standard; Exchange Rate; Trade Strucutre; Debt Structure; Japan;
Find related papers by JEL classification:
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
- F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
- F34 - International Economics - - International Finance - - - International Lending and Debt Problems
- N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative
- N25 - Economic History - - Financial Markets and Institutions - - - Asia including Middle East
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-07-03 (All new papers)
- NEP-HIS-2009-07-03 (Business, Economic & Financial History)
- NEP-IFN-2009-07-03 (International Finance)
- NEP-MON-2009-07-03 (Monetary Economics)
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