IDEAS home Printed from https://ideas.repec.org/p/bis/biswps/328.html
   My bibliography  Save this paper

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

Author

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
    as

    Download full text from publisher

    File URL: http://www.bis.org/publ/work328.pdf
    File Function: Full PDF document
    Download Restriction: no
    File URL: http://www.bis.org/publ/work328.htm
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Battilossi, Stefano, 2006. "The determinants of multinational banking during the first globalisation 1880–1914," European Review of Economic History, Cambridge University Press, vol. 10(3), pages 361-388, December.
    2. Flandreau, Marc & Jobst, Clemens, 2005. "The Ties that Divide: A Network Analysis of the International Monetary System, 1890–1910," The Journal of Economic History, Cambridge University Press, vol. 65(4), pages 977-1007, December.
    3. David, Paul A, 1985. "Clio and the Economics of QWERTY," American Economic Review, American Economic Association, vol. 75(2), pages 332-337, May.
    4. Marc Flandreau & Clemens Jobst, 2009. "The Empirics of International Currencies: Network Externalities, History and Persistence," Economic Journal, Royal Economic Society, vol. 119(537), pages 643-664, April.
    5. Hausmann Ricardo & Panizza Ugo, 2011. "Redemption or Abstinence? Original Sin, Currency Mismatches and Counter Cyclical Policies in the New Millennium," Journal of Globalization and Development, De Gruyter, vol. 2(1), pages 1-35, August.
    6. Gino Cattani & Adrian E. Tschoegl, 2002. "An Evolutionary View of Internationalization: Chase Manhattan Bank, 1917 to 1996," Center for Financial Institutions Working Papers 02-37, Wharton School Center for Financial Institutions, University of Pennsylvania.
    7. Perry Mehrling, 2010. "The New Lombard Street: How the Fed Became the Dealer of Last Resort," Economics Books, Princeton University Press, edition 1, number 9298.
    8. Flandreau, Marc & Jobst, Clemens, 2005. "The Ties that Divide. A Network Analysis of the International Monetary System," CEPR Discussion Papers 5129, C.E.P.R. Discussion Papers.
    9. Menzie D. Chinn & Jeffrey A. Frankel, 2008. "The Euro May Over the Next 15 Years Surpass the Dollar as Leading International Currency," NBER Working Papers 13909, National Bureau of Economic Research, Inc.
    10. Briones, Ignacio & Villela, André, 2006. "European bank penetration during the first wave of globalisation: Lessons from Brazil and Chile, 1878–1913," European Review of Economic History, Cambridge University Press, vol. 10(3), pages 329-359, December.
    11. Liebowitz, S J & Margolis, Stephen E, 1990. "The Fable of the Keys," Journal of Law and Economics, University of Chicago Press, vol. 33(1), pages 1-25, April.
    12. repec:hal:wpspec:info:hdl:2441/605 is not listed on IDEAS
    13. Eichengreen, Barry & Flandreau, Marc, 2009. "The rise and fall of the dollar (or when did the dollar replace sterling as the leading reserve currency?)," European Review of Economic History, Cambridge University Press, vol. 13(3), pages 377-411, December.
    14. Ignacio Briones & André Villela, 2006. "European Bank Penetration During The First Wave Of Globalization: Lessons From Brazil And Chile, 1878/1913," Anais do XXXIV Encontro Nacional de Economia [Proceedings of the 34th Brazilian Economics Meeting] 23, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    15. Moulton, Brent R, 1990. "An Illustration of a Pitfall in Estimating the Effects of Aggregate Variables on Micro Unit," The Review of Economics and Statistics, MIT Press, vol. 72(2), pages 334-338, May.
    Full references (including those not matched with items on IDEAS)

    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

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Robert N McCauley & Tracy Chan, 2014. "Currency movements drive reserve composition," BIS Quarterly Review, Bank for International Settlements, December.
    2. 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.
    3. 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.
    4. 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.
    5. 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.
    6. 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.
    7. 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.
    8. 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.
    9. Ignazio Angeloni & André Sapir, 2011. "The international monetary system is changing- what opportunities and risks for the euro?," Working Papers 632, Bruegel.
    10. 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.
    11. Yu, Yongding, 2012. "Revisiting the Internationalization of the Yuan," ADBI Working Papers 366, Asian Development Bank Institute.
    12. 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.
    13. Zhang, Cathy, 2014. "An information-based theory of international currency," Journal of International Economics, Elsevier, vol. 93(2), pages 286-301.
    14. 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.

    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. Barry Eichengreen & Marc Flandreau, 2012. "The Federal Reserve, the Bank of England, and the Rise of the Dollar as an International Currency, 1914–1939," Open Economies Review, Springer, vol. 23(1), pages 57-87, February.
    2. Marc Flandreau & Clemens Jobst, 2006. "The Empirics of International Currencies: Evidence from the 19th Century," Working Papers hal-01065631, HAL.
    3. repec:hal:wpspec:info:hdl:2441/669 is not listed on IDEAS
    4. repec:spo:wpecon:info:hdl:2441/669 is not listed on IDEAS
    5. Marc Flandreau & Clemens Jobst, 2009. "The Empirics of International Currencies: Network Externalities, History and Persistence," Economic Journal, Royal Economic Society, vol. 119(537), pages 643-664, April.
    6. repec:spo:wpmain:info:hdl:2441/669 is not listed on IDEAS
    7. 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.
    8. repec:hal:spmain:info:hdl:2441/669 is not listed on IDEAS
    9. Hyoung-kyu Chey, 2013. "The Concepts, Consequences, and Determinants of Currency Internationalization," GRIPS Discussion Papers 13-03, National Graduate Institute for Policy Studies.
    10. De Nicola, Giacomo & Fritz, Cornelius & Mehrl, Marius & Kauermann, Göran, 2023. "Dependence matters: Statistical models to identify the drivers of tie formation in economic networks," Journal of Economic Behavior & Organization, Elsevier, vol. 215(C), pages 351-363.
    11. Akerman, Anders & Seim, Anna Larsson, 2014. "The global arms trade network 1950–2007," Journal of Comparative Economics, Elsevier, vol. 42(3), pages 535-551.
    12. Nogues-Marco, Pilar, 2017. "Money Markets and Exchange Rates in Pre-Industrial Europe," Working Papers unige:100808, University of Geneva, Paul Bairoch Institute of Economic History.
    13. 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.
    14. Stefano Ugolini, 2011. "Foreign exchange reserve management in the 19th century: The National Bank of Belgium in the 1850s," Working Paper 2011/07, Norges Bank.
    15. Marc Flandreau & Christophe Galimard & Clemens Jobst & Pilar Nogués-Marco, 2009. "Monetary geography before the Industrial Revolution," Cambridge Journal of Regions, Economy and Society, Cambridge Political Economy Society, vol. 2(2), pages 149-171.
    16. Barry Eichengreen, 2011. "It May Be Our Currency, But It'S Your Problem," Australian Economic History Review, Economic History Society of Australia and New Zealand, vol. 51(3), pages 245-253, November.
    17. Chitu, Liva & Eichengreen, Barry & Mehl, Arnaud, 2012. "When did the dollar overtake sterling as the leading international currency? Evidence from the bond markets (revised)," Department of Economics, Working Paper Series qt3v03b36h, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    18. Wiebke Roß & Jens Weghake, 2018. "Wa(h)re Liebe: Was Online-Dating-Plattformen über zweiseitige Märkte lehren," TUC Working Papers in Economics 0017, Abteilung für Volkswirtschaftslehre, Technische Universität Clausthal (Department of Economics, Technical University Clausthal).
    19. Barry Eichengreen & Chitu Livia & Arnaud Mehl, 2014. "Stability or upheaval? The currency composition of international reserves in the long run," Globalization Institute Working Papers 201, Federal Reserve Bank of Dallas.
    20. Christian Dahl Winther, 2007. "Optimal research effort and product differentiation in network industries," Economics Working Papers 2007-19, Department of Economics and Business Economics, Aarhus University.
    21. Bernhard Ebbinghaus, 2009. "Can Path Dependence Explain Institutional Change? Two Approaches Applied to Welfare State Reform," Chapters, in: Lars Magnusson & Jan Ottosson (ed.), The Evolution of Path Dependence, chapter 8, Edward Elgar Publishing.
    22. Olivier Accominotti & Delio Lucena‐Piquero & Stefano Ugolini, 2021. "The origination and distribution of money market instruments: sterling bills of exchange during the first globalization," Economic History Review, Economic History Society, vol. 74(4), pages 892-921, November.
    23. Vialle, Pierre & Song, Junjie & Zhang, Jian, 2012. "Competing with dominant global standards in a catching-up context. The case of mobile standards in China," Telecommunications Policy, Elsevier, vol. 36(10), pages 832-846.
    24. Daniel Gersten Reiss, 2015. "Invoice currency: Puzzling evidence and new questions from Brazil," Economia, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics], vol. 16(2), pages 206-225.

    More about this item

    Keywords

    foreign exchange reserves; network externalities; path dependency; money markets;
    All these keywords.

    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:bis:biswps:328. 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: Martin Fessler (email available below). General contact details of provider: https://edirc.repec.org/data/bisssch.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.