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Foreign exchange reserve management in the 19th century: The National Bank of Belgium in the 1850s

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  • Stefano Ugolini

    () (Scuola Normale Superiore, Pisa)

Abstract

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.

Suggested Citation

  • Stefano Ugolini, 2011. "Foreign exchange reserve management in the 19th century: The National Bank of Belgium in the 1850s," Working Paper 2011/07, Norges Bank.
  • Handle: RePEc:bno:worpap:2011_07 Note: First version:
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    File URL: http://www.norges-bank.no/en/Published/Papers/Working-Papers/2011/WP-201107/
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    References listed on IDEAS

    as
    1. Flandreau, Marc & Jobst, Clemens, 2005. "The Ties that Divide: A Network Analysis of the International Monetary System, 1890 1910," The Journal of Economic History, Cambridge University Press, vol. 65(04), pages 977-1007, December.
    2. Lars Fredrik Øksendal, 2008. "Monetary policy under the gold standard - examining the case of Norway, 1893-1914," Working Paper 2008/14, Norges Bank.
    3. 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.
    4. Marc Flandreau, Stefano Ugolini, 2011. "Where It All Began: Lending of Last Resort and the Bank of England during the Overend, Gurney Panic of 1866," IHEID Working Papers 04-2011, Economics Section, The Graduate Institute of International Studies.
    5. 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.
    6. 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.
    7. Battilossi, Stefano, 2000. "Financial innovation and the golden ages of international banking: 1890 81," Financial History Review, Cambridge University Press, vol. 7(02), pages 141-175, October.
    8. Stefano Ugolini, 2012. "The origins of foreign exchange policy: the National Bank of Belgium and the quest for monetary independence in the 1850s," European Review of Economic History, Oxford University Press, vol. 16(1), pages 51-73, February.
    9. 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.
    10. Flandreau, Marc & Jobst, Clemens, 2005. "The Ties that Divide. A Network Analysis of the International Monetary System," CEPR Discussion Papers 5129, C.E.P.R. Discussion Papers.
    11. 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.
    12. Stefano Ugolini, 2011. "An ‘Atypical’ Case? The First Emergence of Brussels as an International Financial Centre, 1830-1860," Post-Print hal-01294365, HAL.
    13. repec:spo:wpecon:info:hdl:2441/605 is not listed on IDEAS
    14. Stefano Ugolini, 2010. "The international monetary system, 1844-1870: Arbitrage, efficiency, liquidity," Working Paper 2010/23, Norges Bank.
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    Cited by:

    1. 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.
    2. Marc Flandreau & Stefano Ugolini, 2014. "The Crisis of 1866," Post-Print hal-01293925, HAL.

    More about this item

    Keywords

    Foreign exchange reserves; international monetary systems; central banking; risk management;

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • N23 - Economic History - - Financial Markets and Institutions - - - Europe: Pre-1913

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