Foreign exchange reserve management in the 19th century: The National Bank of Belgium in the 1850s
As well as the current one, the wave of globalization culminated in 1913 was marked by increasing accumulation of foreign exchange reserves. But what did ‘reserves’ mean in the past, how were they managed, and how much relevant are the differences between then and now? This paper is the first attempt to investigate 19th-century reserve management from central banks’ perspective. Building on a significant case study (the National Bank of Belgium, i.e. the ‘inventor’ of foreign exchange policy, in the 1850s), it shows that risk management practices in the past differed considerably from nowadays. The structure of the international monetary system allowed central banks to minimize financial risk, while poor institutional design enhanced operational risk: this is in stark contrast with the present situation, in which operational risk has been minimized and financial risk has considerably increased. Yet 19th-century reserve management was apparently not conducive to major losses for central banks, while the opposite seems to have been the case in the 21st century.
|Date of creation:||05 Jul 2011|
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- Marc Flandreau, 1997.
"Central Bank Co-operation in Historical Perspective: a Sceptical View,"
Sciences Po publications
info:hdl:2441/648, Sciences Po.
- Marc Flandreau, 1997. "Central Bank Cooperation in Historical Perspective: A Sceptical View," Economic History Review, Economic History Society, vol. 50(4), pages 735-763, November.
- Jukka Pihlman & Han van der Hoorn, 2010. "Procyclicality in Central Bank Reserve Management: Evidence from the Crisis," IMF Working Papers 10/150, International Monetary Fund.
- Isabel Schnabel & Hyun Song Shin, 2004. "Liquidity and Contagion: The Crisis of 1763," Journal of the European Economic Association, MIT Press, vol. 2(6), pages 929-968, December.
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