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The Federal Reserve, the Bank of England and the rise of the dollar as an international currency, 1914-39

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Listed:
  • Barry Eichengreen
  • Marc Flandreau

Abstract

This paper provides new evidence on the rise of the dollar as an international currency, focusing on its role in the conduct of trade and the provision of trade credit. We show that the shift to the dollar occurred much earlier than conventionally supposed: during and immediately after World War I. Not just market forces but also policy support - the Fed in its role as market maker - was important for the dollar's overtaking of sterling as the leading international currency. On balance, this experience challenges the popular notion of international currency status as being determined mainly by market size. It suggests that the popular image of strongly increasing returns and pervasive network externalities leaving room for only one monetary technology is misleading.

Suggested Citation

  • Barry Eichengreen & Marc Flandreau, 2010. "The Federal Reserve, the Bank of England and the rise of the dollar as an international currency, 1914-39," BIS Working Papers 328, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:328
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    References listed on IDEAS

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    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Donald Trump, Treasury Debt and the Dollar
      by Stephen G. Cecchetti in Huffington Post Business on 2016-05-24 09:01:07
    2. To RMB or not to RMB? Lessons from Currency History
      by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets on 2014-08-18 15:42:16

    Citations

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    Cited by:

    1. Ignazio Angeloni & André Sapir, 2011. "The international monetary system is changing- what opportunities and risks for the euro?," Working Papers 632, Bruegel.
    2. Chiţu, Livia & Eichengreen, Barry & Mehl, Arnaud, 2014. "History, gravity and international finance," Journal of International Money and Finance, Elsevier, vol. 46(C), pages 104-129.
    3. Eric Helleiner & Anton Malkin, 2012. "Sectoral Interests and Global Money: Renminbi, Dollars and the Domestic Foundations of International Currency Policy," Open Economies Review, Springer, vol. 23(1), pages 33-55, February.
    4. Ignazio Angeloni & Agnès Bénassy-Quéré & Benjamin Carton & Christophe Destais & Zsolt Darvas & Jean Pisani-Ferry & André Sapir & Shahin Vallée, . "Global currencies for tomorrow- a European perspective," Blueprints, Bruegel, number 592, June.
    5. Robert N McCauley & Tracy Chan, 2014. "Currency movements drive reserve composition," BIS Quarterly Review, Bank for International Settlements, December.
    6. Agnes Benassy-Quere & Jean Pisani-Ferry, 2011. "What International Monetary System for a Fast-Changing World Economy?," Book Chapters, in: Jack T. Boorman & André Icard (ed.), Reform of the International Monetary System: The Palais Royal Initiative, edition 1, chapter 21, pages 255-298, Emerging Markets Forum.
    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. Yu, Yongding, 2012. "Revisiting the Internationalization of the Yuan," ADBI Working Papers 366, Asian Development Bank Institute.
    9. Zhang, Cathy, 2014. "An information-based theory of international currency," Journal of International Economics, Elsevier, vol. 93(2), pages 286-301.
    10. Tomasz Serwach, 2013. "Renminbi jako waluta miedzynarodowa - stan obecny oraz ocena perspektyw / Renminbi as international currency - current state and potential perspectives," International Economics, University of Lodz, Faculty of Economics and Sociology, issue 4, pages 39-53, December.
    11. Eswar S. Prasad & Lei Ye, 2011. "The renminbi’s role in the global monetary system," Proceedings, Federal Reserve Bank of San Francisco, issue Nov, pages 127-197.
    12. 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.
    13. Benjamin Cohen, 2012. "The Benefits and Costs of an International Currency: Getting the Calculus Right," Open Economies Review, Springer, vol. 23(1), pages 13-31, February.
    14. Marc Flandreau & Stefano Ugolini, 2013. "Where It All Began: Lending of Last Resort and Bank of England Monitoring During the Overend-Gurney Panic of 1866," Post-Print hal-01293916, HAL.

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    Keywords

    foreign exchange reserves; network externalities; path dependency; money markets;
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