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Zombie International Currency: The Pound Sterling 1945-1973

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Abstract

This paper provides new evidence on the decline of the pound sterling as an international currency, with a focus on its role as a foreign exchange reserve asset in the Bretton Woods era. I construct a new dataset on the composition of foreign exchange reserves of European and sterling area monetary authorities. The shift away from sterling occurred earlier than commonly assumed for countries outside the sterling area. Using both quantitative analysis and new archival findings, I provide a new narrative for the decline of sterling. The continuation of the postwar reserve role of sterling was possible because the sterling area was a captive market in which countries were constrained to keep their foreign exchange in pounds sterling. I document the exchange controls, commercial threats and economic sanctions employed by the British authorities within the sterling zone to limit the divestments of their assets. Sterling area members suffered from the erosion of the value of their holdings while the British economy and the City largely profited from the system.

Suggested Citation

  • Maylis Avaro, 2020. "Zombie International Currency: The Pound Sterling 1945-1973," IHEID Working Papers 03-2020, Economics Section, The Graduate Institute of International Studies, revised 12 Aug 2020.
  • Handle: RePEc:gii:giihei:heidwp03-2020
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    References listed on IDEAS

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    1. Frankel, Jeffrey, 2012. "Internationalization of the RMB and Historical Precedents," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 27, pages 329-365.
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    4. Bean, Charles R & Crafts, Nicholas, 1995. "British Economic Growth Since 1945: Relative Economic Decline .... and Renaissance?," CEPR Discussion Papers 1092, C.E.P.R. Discussion Papers.
    5. 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.
    6. Michel Fouquin & Jules Hugot, 2016. "Two Centuries of Bilateral Trade and Gravity data: 1827-2014," Vniversitas Económica 015129, Universidad Javeriana - Bogotá.
    7. Maurice Obstfeld & Jay C. Shambaugh & Alan M. Taylor, 2010. "Financial Stability, the Trilemma, and International Reserves," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(2), pages 57-94, April.
    8. Menzie Chinn & Jeffrey Frankel, 2008. "Why the Euro Will Rival the Dollar," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 55(3), pages 255-278, September.
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    More about this item

    Keywords

    Monetary and financial history; Foreign exchange; International monetary system;

    JEL classification:

    • N24 - Economic History - - Financial Markets and Institutions - - - Europe: 1913-
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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