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The sterling trap: foreign reserves management at the Bank of France, 1928–1936

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  • ACCOMINOTTI, OLIVIER

Abstract

French reserves policy during the interwar years has been heavily criticised because of its consequences for other countries. This article presents new monthly data on the Bank of France's foreign reserves currency composition between 1928 and 1936, and identifies the motivations behind reserves policy. The Bank of France's aim was to limit the risk of capital loss on its foreign portfolio. The determining factor in its portfolio allocation decisions was the credibility of reserves currencies on the exchange market. Credibility issues explain both the sale of pounds against dollars during 1929 and 1930 and the massive conversion of foreign holdings into gold from 1931 on. However, due to the huge volume of its reserves, the Bank also had to consider the effects of its own actions on the market. Its cooperative attitude towards sterling in the months before British devaluation can be explained through its market position. The Bank of France's portfolio choice was that of a large player in a low-credibility international monetary system.

Suggested Citation

  • 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.
  • Handle: RePEc:cup:ereveh:v:13:y:2009:i:03:p:349-376_99
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    1. repec:eee:dyncon:v:81:y:2017:i:c:p:5-31 is not listed on IDEAS
    2. Colvin, Christopher L., 2015. "The past, present and future of banking history," QUCEH Working Paper Series 15-05, Queen's University Belfast, Queen's University Centre for Economic History.
    3. Accominotti, Olivier, 2012. "London Merchant Banks, the Central European Panic, and the Sterling Crisis of 1931," The Journal of Economic History, Cambridge University Press, vol. 72(01), pages 1-43, March.
    4. Andreas Steiner, 2013. "A Tale of Two Deficits: Public Budget Balance of Reserve Currency Countries," Working Papers 97, Institute of Empirical Economic Research, Osnabrueck University.
    5. Barry Eichengreen & Marc Flandreau, 2008. "The Rise and Fall of the Dollar, or When Did the Dollar Replace Sterling as the Leading International Currency?," NBER Working Papers 14154, National Bureau of Economic Research, Inc.
    6. 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.
    7. Douglas A. Irwin, 2010. "Did France Cause the Great Depression?," NBER Working Papers 16350, National Bureau of Economic Research, Inc.
    8. John Singleton & Catherine R. Schenk, 2015. "The shift from sterling to the dollar, 1965–76: evidence from Australia and New Zealand," Economic History Review, Economic History Society, vol. 68(4), pages 1154-1176, November.
    9. Fratianni, Michele & Giri, Federico, 2017. "The tale of two great crises," Journal of Economic Dynamics and Control, Elsevier, vol. 81(C), pages 5-31.

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