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Mutual assistance between Federal Reserve Banks, 1913-1960 as prolegomena to the TARGET2 debate

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

Abstract

This paper reconstructs the forgotten history of mutual assistance among Reserve Banks in the early years of the Federal Reserve System. We use data on accommodation operations by the 12 Reserve Banks between 1913 and 1960 which enabled them to mutualise their gold reserves in emergency situations. Gold reserve sharing was especially important in response to liquidity crises and bank runs. Cooperation among reserve banks was essential for the cohesion and stability of the US monetary union. But fortunes could change quickly, with emergency recipients of gold turning into providers. Because regional imbalances did not grow endlessly, instead narrowing when region-specific liquidity shocks subsided, mutual assistance created only limited tensions. These findings speak to the current debate over TARGET2 balances in Europe. JEL Classification: F30, N20

Suggested Citation

  • Mehl, Arnaud & Eichengreen, Barry & Chiţu, Livia & Richardson, Gary, 2014. "Mutual assistance between Federal Reserve Banks, 1913-1960 as prolegomena to the TARGET2 debate," Working Paper Series 1686, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:20141686
    Note: 501438
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    Cited by:

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    2. Barry Eichengreen, 2014. "Doctrinal determinants, domestic and international of Federal Reserve policy, 1914-1933," Globalization Institute Working Papers 195, Federal Reserve Bank of Dallas.
    3. Alexander L. Wolman, 2013. "Federal Reserve Interdistrict Settlement," Economic Quarterly, Federal Reserve Bank of Richmond, issue 2Q, pages 117-141.
    4. Eisenschmidt, Jens & Kedan, Danielle & Schmitz, Martin & Adalid, Ramón & Papsdorf, Patrick, 2017. "The Eurosystem’s asset purchase programme and TARGET balances," Occasional Paper Series 196, European Central Bank.
    5. Schelkle, Waltraud, 2018. "The political economy of monetary solidarity: revisiting the Euro experiment," LSE Research Online Documents on Economics 90201, London School of Economics and Political Science, LSE Library.
    6. Campiglio, Luigi Pierfranco, 2015. "Employment and the “Investment Gap”: An Econometric Model of European Imbalances," MPRA Paper 64113, University Library of Munich, Germany.
    7. Chmielewski Tomasz & Sławiński Andrzej, 2019. "Lessons from TARGET2 imbalances: The case for the ECB being a lender of last resort," Economics and Business Review, Sciendo, vol. 5(2), pages 48-63, June.

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    More about this item

    Keywords

    Federal Reserve System; gold standard; liquidity and financial crises; monetary policy; risk sharing; TARGET2 balances;
    All these keywords.

    JEL classification:

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

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