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When did the dollar overtake sterling as the leading international currency? Evidence from the bond markets

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  • Chiţu, Livia
  • Eichengreen, Barry
  • Mehl, Arnaud

Abstract

We offer new evidence on the emergence of the dollar as the leading international currency focusing on its role as currency of denomination in global bond markets. We show that the dollar overtook sterling much earlier than commonly supposed, as early as in 1929. Financial development appears to have been the main factor helping the dollar to overcome sterling's head start. The finding that a shift from a unipolar to a multipolar international monetary and financial system has happened before suggests that it can happen again. That the shift occurred earlier than commonly believed suggests that the advantages of incumbency are not insurmountable. And that financial deepening was a key determinant of the dollar's emergence points to the challenges facing currencies aspiring to international status.

Suggested Citation

  • Chiţu, Livia & Eichengreen, Barry & Mehl, Arnaud, 2014. "When did the dollar overtake sterling as the leading international currency? Evidence from the bond markets," Journal of Development Economics, Elsevier, vol. 111(C), pages 225-245.
  • Handle: RePEc:eee:deveco:v:111:y:2014:i:c:p:225-245
    DOI: 10.1016/j.jdeveco.2013.09.008
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    Cited by:

    1. Barry Eichengreen & Livia Chiu & Arnaud Mehl, 2016. "Network effects, homogeneous goods and international currency choice: New evidence on oil markets from an older era," Canadian Journal of Economics, Canadian Economics Association, vol. 49(1), pages 173-206, February.
    2. Matteo Maggiori & Emmanuel Farhi, 2015. "A Model of the International Monetary System," Working Paper 349586, Harvard University OpenScholar.
    3. Agnès Bénassy-Quéré, 2015. "The euro as an international currency," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-01299083, HAL.
    4. repec:oup:jeurec:v:15:y:2017:i:4:p:721-745. is not listed on IDEAS
    5. Eichengreen, Barry & Livia, Chitu & Mehl, Arnaud, 2014. "Stability or upheaval? The currency composition of international reserves in the long run," Globalization and Monetary Policy Institute Working Paper 201, Federal Reserve Bank of Dallas.
    6. Chiţu, Livia & Eichengreen, Barry & Mehl, Arnaud, 2014. "History, gravity and international finance," Journal of International Money and Finance, Elsevier, vol. 46(C), pages 104-129.
    7. Jorda, Oscar & Schularick, Moritz & Taylor, Alan M. & Ward, Felix, 2018. "Global Financial Cycles and Risk Premiums," Working Paper Series 2018-5, Federal Reserve Bank of San Francisco.
    8. Barry Eichengreen & Domenico Lombardi, 2017. "RMBI or RMBR? Is the Renminbi Destined to Become a Global or Regional Currency?," Asian Economic Papers, MIT Press, vol. 16(1), pages 35-59, Winter/Sp.
    9. Papadia, Andrea, 2017. "Sovereign defaults during the Great Depression: the role of fiscal fragility," Economic History Working Papers 68943, London School of Economics and Political Science, Department of Economic History.
    10. Eichengreen, Barry & Flandreau, Marc & Mehl, Arnaud & Chitu, Livia, 2017. "International Currencies Past, Present, and Future: Two Views from Economic History," OUP Catalogue, Oxford University Press, number 9780190659455.
    11. Agnès Bénassy-Quéré, 2015. "The euro as an international currency," Working Papers halshs-01144371, HAL.
    12. Michael Bordo & Eric Monnet & Alain Naef, 2017. "The Gold Pool (1961-1968) and the Fall of the Bretton Woods System. Lessons for Central Bank Cooperation," NBER Working Papers 24016, National Bureau of Economic Research, Inc.
    13. Barry Eichengreen, 2013. "ADB Distinguished Lecture Renminbi Internationalization: Tempest in a Teapot?," Asian Development Review, MIT Press, vol. 30(1), pages 148-164, March.
    14. Elena Gerko & Hélène Rey, 2017. "Monetary Policy in the Capitals of Capital," Journal of the European Economic Association, European Economic Association, vol. 15(4), pages 721-745.
    15. repec:hal:cesptp:halshs-01144371 is not listed on IDEAS
    16. Agnès Bénassy-Quéré, 2015. "The euro as an international currency," Post-Print halshs-01163926, HAL.
    17. Barry Eichengreen & Arnaud J. Mehl & Livia Chitu, 2017. "Mars or Mercury? The Geopolitics of International Currency Choice," NBER Working Papers 24145, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    Foreign public debt; International monetary system; International currencies; Role of the US dollar; Network externalities; Path dependency;

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative

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