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Suez and Sterling, 1956

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  • Klug, Adam
  • Smith, Gregor W.

Abstract

Daily data on spot and forward dollar/sterling exchange rates and on Britain's foreign exchange reserves are used to reassess the financial history of the 1956 Suez crisis. We find that support of sterling at its Bretton Woods lower bound lost credibility as early as July. Reserve losses also are consistent with an exchange rate crisis. We provide the first econometric study of foreign exchange market intervention in the pre-convertibility phase of the Bretton Woods system. The Bank of England's interventions reacted strongly both to official sterling and to the transferable sterling market in New York, which suggests that convertibility was a central goal of policy.
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Suggested Citation

  • Klug, Adam & Smith, Gregor W., 1999. "Suez and Sterling, 1956," Explorations in Economic History, Elsevier, vol. 36(3), pages 181-203, July.
    • Handle: RePEc:eee:exehis:v:36:y:1999:i:3:p:181-203
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    References listed on IDEAS

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    1. Lars E. O. Svensson, 1991. "The Simplest Test of Target Zone Credibility," IMF Staff Papers, Palgrave Macmillan, vol. 38(3), pages 655-665, September.
    2. Eijffinger, S.C.W. & Gruijters, A.P.D., 1989. "On the short term objectives of daily intervention by the Deutsche Bundesbank and the federal reserve system in the U.S. Dollar-Deutsche Mark exchange market," Other publications TiSEM b3c9a534-131a-48b4-abbb-c, Tilburg University, School of Economics and Management.
    3. Anonymous, 1957. "International Monetary Fund," International Organization, Cambridge University Press, vol. 11(1), pages 176-179, January.
    4. Maurice Obstfeld & Alan M. Taylor, 1998. "The Great Depression as a Watershed: International Capital Mobility over the Long Run," NBER Chapters, in: The Defining Moment: The Great Depression and the American Economy in the Twentieth Century, pages 353-402, National Bureau of Economic Research, Inc.
    5. Almekinders, Geert J. & Eijffinger, Sylvester C. W., 1996. "A friction model of daily Bundesbank and Federal Reserve intervention," Journal of Banking & Finance, Elsevier, vol. 20(8), pages 1365-1380, September.
    6. Anonymous, 1957. "International Monetary Fund," International Organization, Cambridge University Press, vol. 11(4), pages 683-686, October.
    7. Maurice Obstfeld, 1993. "The Adjustment Mechanism," NBER Chapters, in: A Retrospective on the Bretton Woods System: Lessons for International Monetary Reform, pages 201-268, National Bureau of Economic Research, Inc.
    8. Catherine R. Schenk, 1994. "Closing the Hong Kong Gap: the Hong Kong free dollar market in the 1950s," Economic History Review, Economic History Society, vol. 47(2), pages 335-353, May.
    9. Michael Bordo & Anna Schwartz, 1996. "Why clashes between internal and external stability goals end in currency crises, 1797–1994," Open Economies Review, Springer, vol. 7(1), pages 437-468, March.
    10. Anonymous, 1957. "International Monetary Fund," International Organization, Cambridge University Press, vol. 11(3), pages 537-538, July.
    11. Garber, Peter M. & Svensson, Lars E.O., 1995. "The operation and collapse of fixed exchange rate regimes," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 36, pages 1865-1911, Elsevier.
    12. Alberto Giovannini, 1993. "Bretton Woods and Its Precursors: Rules versus Discretion in the History of International Monetary Regimes," NBER Chapters, in: A Retrospective on the Bretton Woods System: Lessons for International Monetary Reform, pages 109-154, National Bureau of Economic Research, Inc.
    13. Anonymous, 1957. "Bank for International Settlements," International Organization, Cambridge University Press, vol. 11(3), pages 578-579, July.
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    Cited by:

    1. Bordo, Michael D. & Macdonald, Ronald & Oliver, Michael J., 2009. "Sterling in crisis, 1964–1967," European Review of Economic History, Cambridge University Press, vol. 13(3), pages 437-459, December.

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    More about this item

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • N24 - Economic History - - Financial Markets and Institutions - - - Europe: 1913-

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