IDEAS home Printed from https://ideas.repec.org/p/bfr/banfra/882.html
   My bibliography  Save this paper

The Rise and Fall of Global Currencies over Two Centuries

Author

Listed:
  • Roger Vicquéry

Abstract

This paper quantifies the relative dominance of global currencies and the competitive structure of the international monetary system since 1825. I find the post-1945 experience of dollar hegemony to have no historical precedent. No currency has ever maintained such a large, long-lasting lead over global currency rivals. Close competitors frequently challenged the previous hegemon, the pound sterling. I confirm the dollar temporarily overtook the sterling for the first time in the mid-1920s. Among previously overlooked episodes of monetary competition, I highlight the rise of the French franc in the 1850s and 1930s as well as of the German mark in the 1870s. In light of the recent debate on the costs and benefits of a multipolar international monetary system, I document a positive correlation between higher global currency competition and the prevalence of financial crises, which is however highly dependent on specific sub-periods.

Suggested Citation

  • Roger Vicquéry, 2022. "The Rise and Fall of Global Currencies over Two Centuries," Working papers 882, Banque de France.
    • Handle: RePEc:bfr:banfra:882
    as

    Download full text from publisher

    File URL: https://publications.banque-france.fr/sites/default/files/medias/documents/wp882.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Accominotti, Olivier & Cen, Jason & Chambers, David & Marsh, Ian W., 2019. "Currency Regimes and the Carry Trade," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 54(5), pages 2233-2260, October.
    2. Hélène Rey, 2001. "International Trade and Currency Exchange," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 68(2), pages 443-464.
    3. Ito, Hiro & McCauley, Robert N., 2019. "A key currency view of global imbalances," Journal of International Money and Finance, Elsevier, vol. 94(C), pages 97-115.
    4. Menzie Chinn & Jeffrey A. Frankel, 2007. "Will the Euro Eventually Surpass the Dollar as Leading International Reserve Currency?," NBER Chapters, in: G7 Current Account Imbalances: Sustainability and Adjustment, pages 283-338, National Bureau of Economic Research, Inc.
    5. Carmen M. Reinhart & Kenneth S. Rogoff, 2014. "This Time is Different: A Panoramic View of Eight Centuries of Financial Crises," Annals of Economics and Finance, Society for AEF, vol. 15(2), pages 215-268, November.
    6. Emmanuel Farhi & Matteo Maggiori, 2018. "A Model of the International Monetary System," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 133(1), pages 295-355.
    7. Ethan Ilzetzki & Carmen M Reinhart & Kenneth S Rogoff, 2019. "Exchange Arrangements Entering the Twenty-First Century: Which Anchor will Hold?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 134(2), pages 599-646.
    8. McCauley, Robert N. & Shu, Chang, 2019. "Recent renminbi policy and currency co-movements," Journal of International Money and Finance, Elsevier, vol. 95(C), pages 444-456.
    9. Mr. Johannes Wiegand, 2019. "Destabilizing the Global Monetary System: Germany’s Adoption of the Gold Standard in the Early 1870s," IMF Working Papers 2019/032, International Monetary Fund.
    10. Jeffrey Frankel & Daniel Xie, 2010. "Estimation of De Facto Flexibility Parameter and Basket Weights in Evolving Exchange Rate Regimes," American Economic Review, American Economic Association, vol. 100(2), pages 568-572, May.
    11. Konstantin Egorov & Dmitry Mukhin, 2020. "Optimal Policy under Dollar Pricing," CESifo Working Paper Series 8272, CESifo.
    12. Mr. Camilo E Tovar Mora & Tania Mohd Nor, 2018. "Reserve Currency Blocs: A Changing International Monetary System?," IMF Working Papers 2018/020, International Monetary Fund.
    13. 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.
    14. Arslanalp, Serkan & Eichengreen, Barry & Simpson-Bell, Chima, 2022. "The stealth erosion of dollar dominance and the rise of nontraditional reserve currencies," Journal of International Economics, Elsevier, vol. 138(C).
    15. Larry D. Neal & Marc D. Weidenmier, 2003. "Crises in the Global Economy from Tulips to Today," NBER Chapters, in: Globalization in Historical Perspective, pages 473-514, National Bureau of Economic Research, Inc.
    16. Marc Flandreau, 1996. "The French Crime of 1873: An Essay on the Emergence of the International Gold Standard, 1870-1880," Post-Print hal-03416271, HAL.
    17. Mr. Serkan Arslanalp & Mr. Barry J. Eichengreen & Chima Simpson-Bell, 2022. "The Stealth Erosion of Dollar Dominance: Active Diversifiers and the Rise of Nontraditional Reserve Currencies," IMF Working Papers 2022/058, International Monetary Fund.
    18. Douglas A. Irwin, 2010. "Did France Cause the Great Depression?," NBER Working Papers 16350, National Bureau of Economic Research, Inc.
    19. Flandreau, Marc, 1996. "The French Crime of 1873: An Essay on the Emergence of the International Gold Standard, 1870–1880," The Journal of Economic History, Cambridge University Press, vol. 56(4), pages 862-897, December.
    20. Chenzi Xu, 2022. "Reshaping Global Trade: The Immediate and Long-Run Effects of Bank Failures [“Shift-Share Designs: Theory and Inference,”]," The Quarterly Journal of Economics, Oxford University Press, vol. 137(4), pages 2107-2161.
    21. 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.
    22. Béatrice Dedinger & Paul Girard, 2017. "Exploring trade globalization in the long run: The RICardo project," Historical Methods: A Journal of Quantitative and Interdisciplinary History, Taylor & Francis Journals, vol. 50(1), pages 30-48, January.
    23. Kawai, Masahiro & Pontines, Victor, 2016. "Is there really a renminbi bloc in Asia?: A modified Frankel–Wei approach," Journal of International Money and Finance, Elsevier, vol. 62(C), pages 72-97.
    24. Pierre-Olivier Gourinchas, 2021. "The Dollar Hegemon? Evidence and Implications for Policymakers," World Scientific Book Chapters, in: Steven J Davis & Edward S Robinson & Bernard Yeung (ed.), THE ASIAN MONETARY POLICY FORUM Insights for Central Banking, chapter 7, pages 264-300, World Scientific Publishing Co. Pte. Ltd..
    25. Luca L. Einaudi, 2000. "From the franc to the ‘Europe’: the attempted transformation of the Latin Monetary Union into a European Monetary Union, 1865-1873," Economic History Review, Economic History Society, vol. 53(2), pages 284-308, May.
    26. Marc Flandreau, 1996. "The French Crime of 1873: An Essay on the Emergence of the International Gold Standard, 1870-1880," Post-Print hal-03416270, HAL.
    27. Gita Gopinath & Jeremy C. Stein, 2018. "Trade Invoicing, Bank Funding, and Central Bank Reserve Holdings," AEA Papers and Proceedings, American Economic Association, vol. 108, pages 542-546, May.
    28. Stefano Ugolini, 2010. "The international monetary system, 1844-1870: Arbitrage, efficiency, liquidity," Working Paper 2010/23, Norges Bank.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ito, Hiro & McCauley, Robert N., 2020. "Currency composition of foreign exchange reserves," Journal of International Money and Finance, Elsevier, vol. 102(C).
    2. Pierre-Olivier Gourinchas & Hélène Rey & Maxime Sauzet, 2019. "The International Monetary and Financial System," Annual Review of Economics, Annual Reviews, vol. 11(1), pages 859-893, August.
    3. Tao Liu & Dong Lu & Liang Wang, 2023. "Hegemony or Harmony? A Unified Framework for the International Monetary System," Working Papers 202305, University of Hawaii at Manoa, Department of Economics.
    4. Arslanalp, Serkan & Eichengreen, Barry & Simpson-Bell, Chima, 2022. "The stealth erosion of dollar dominance and the rise of nontraditional reserve currencies," Journal of International Economics, Elsevier, vol. 138(C).
    5. Hiro Ito & Cesar M. Rodriguez, 2020. "Clamoring for greenbacks: Explaining the resurgence of the U.S. dollar in international debt," International Finance, Wiley Blackwell, vol. 23(3), pages 370-391, December.
    6. ITO Hiroyuki & KAWAI Masahiro, 2021. "The Global Monetary System and the Use of Local Currencies in ASEAN+3," Discussion papers 21019, Research Institute of Economy, Trade and Industry (RIETI).
    7. Robert N. McCauley, 2020. "The Global Domain of the Dollar: Eight Questions," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 48(4), pages 421-429, December.
    8. Karaman, K. Kıvanç & Pamuk, Şevket & Yıldırım-Karaman, Seçil, 2020. "Money and monetary stability in Europe, 1300–1914," Journal of Monetary Economics, Elsevier, vol. 115(C), pages 279-300.
    9. Kramer, Bert S. & Milionis, Petros, 2022. "Democratic constraints and adherence to the classical gold standard," Explorations in Economic History, Elsevier, vol. 84(C).
    10. Esteves, Rui Pedro & Reis, Jaime & Ferramosca, Fabiano, 2009. "Market Integration in the Golden Periphery. The Lisbon/London Exchange, 1854-1891," Explorations in Economic History, Elsevier, vol. 46(3), pages 324-345, July.
    11. Mukhin, Dmitry, 2022. "An equilibrium model of the international price system," LSE Research Online Documents on Economics 112500, London School of Economics and Political Science, LSE Library.
    12. Anna Burova & Konstantin Egorov & Dmitry Mukhin, 2022. "Foreign Currency Debt and Exchange Rate Pass-Through," Bank of Russia Working Paper Series wps93, Bank of Russia.
    13. Shekhar Hari Kumar & Vimal Balasubramaniam & Ila Patnaik & Ajay Shah, 2020. "Who cares about the Renminbi?," 2020 Papers pha1373, Job Market Papers.
    14. He, Qing & Liu, Junyi & Yu, Jishuang, 2023. "Dancing with dragon: The RMB and developing economies’ currencies," Research in International Business and Finance, Elsevier, vol. 64(C).
    15. Sophia Lazaretou, 2004. "The Drachma, Foreign Creditors and the International Monetary System: Tales of a Currency during the 19th and the Early 20th Century," Working Papers 16, Bank of Greece.
    16. Christopher M. Meissner, 2002. "A New World Order: Explaining the Emergence of the Classical Gold Standard," NBER Working Papers 9233, National Bureau of Economic Research, Inc.
    17. Liu, Tao & Wang, Xiaosong & Woo, Wing Thye, 2022. "The rise of Renminbi in Asia: Evidence from Network Analysis and SWIFT dataset," Journal of Asian Economics, Elsevier, vol. 78(C).
    18. Joseph H. Davis & Christopher Hanes & Paul W. Rhode, 2009. "Harvests and Business Cycles in Nineteenth-Century America," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(4), pages 1675-1727.
    19. Pamfili Antipa & Vincent Bignon, 2018. "Whither Economic History? Between Narratives and Quantification," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(3), pages 17-36.
    20. 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.

    More about this item

    Keywords

    International Monetary System; Long Run; Dollar Hegemony; Multipolarity;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • N2 - Economic History - - Financial Markets and Institutions
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bfr:banfra:882. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Michael brassart (email available below). General contact details of provider: https://edirc.repec.org/data/bdfgvfr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.