Advertisement

Open Economies Review

, Volume 23, Issue 1, pp 57–87 | Cite as

The Federal Reserve, the Bank of England, and the Rise of the Dollar as an International Currency, 1914–1939

  • Barry Eichengreen
  • Marc FlandreauEmail author
Research Article

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.

Keywords

International currency Liquidity Acceptances Interwar Gold standard Dollar Sterling 

JEL classification

E42 F33 N12 

References

  1. Aliber RZ (1966) The Future of the Dollar as an International Currency. Frederick Praeger, New YorkGoogle Scholar
  2. American Acceptance Council (1931) Facts and Figures Relating to the American Money Market. American Acceptance Council, New YorkGoogle Scholar
  3. American Acceptance Council (various years) Acceptance Bulletin. American Acceptance Council, New York.Google Scholar
  4. Baster ASJ (1935) The International Banks, London PS King and SonsGoogle Scholar
  5. Baster ASJ (1937) The International Acceptance Market. Am Econ Rev 27:294–304Google Scholar
  6. Battilossi S (2006) The Determinants of Multinational Banking during the First Globalisation, 1880–1914. Eur Rev Econ His 10:361–388CrossRefGoogle Scholar
  7. Briones I, Villela A (2006) European Bank Penetration during the First Wave of Globalisation: Lessons from Brazil and Chile, 1878–1913. Eur Rev Econ His 10:329–359CrossRefGoogle Scholar
  8. Broz L (1997) The International Origins of the Federal Reserve System. Cornell University Press, IthacaGoogle Scholar
  9. Cattani G, Tschoegl AE (2002) An Evolutionary View of Internationalization: Chase Manhattan Bank, 1917 to 1996”, Wharton School, Working Paper, 02–37Google Scholar
  10. Chinn M, Frankel J (2008) The Euro May over the Next 15 Years Surpass the Dollar as the Leading International Currency. International Finance (forthcoming).Google Scholar
  11. Committee on Finance and Industry (1931) Report. HMSO, LondonGoogle Scholar
  12. David P (1985) Clio and the Economics of QWERTY. Am Econ Assoc Papers and Proceedings 75:332–337Google Scholar
  13. Eichengreen B, Flandreau M (2009) The Rise and Fall of the Dollar, or When Did the Dollar Overtake Sterling as the Leading Reserve Currency? Eur Rev Econ His 13:377–411CrossRefGoogle Scholar
  14. Ferderer JP (2003) Institutional Innovation and the Creation of Liquid Financial Markets: The Case of Bankers’ Acceptances, 1914–1934. J Econ Hist 63:666–694Google Scholar
  15. Flandreau M, Jobst C (2005) The Ties that Divide: a Network Analysis of the International Monetary System 1890–1910. J Econ Hist 65:977–1007CrossRefGoogle Scholar
  16. Flandreau M, Jobst C (2009) The Empirics of International Currencies: Network Externalities, History and Persistence. Econ J 119:643–666CrossRefGoogle Scholar
  17. Foulke RA (1931) The Commercial Paper Market. The Bankers’ Publishing Company, New YorkGoogle Scholar
  18. Guaranty Trust Company of New York (1919) Acceptances. Guaranty Trust Company, New YorkGoogle Scholar
  19. Hausmann R, Panizza U (2010) Redemption or Abstinence? Original Sin, Currency Mismatches, and Countercyclical Policies in the New Milenium, Center for Internatinal Development, Harvard University, Working Paper no. 194Google Scholar
  20. Horesh N (2008) ’Many a Long Day’: HSBC and its Note Issue in Republican China. Enterprise Soc 9:6–43CrossRefGoogle Scholar
  21. Jacobs LM (1910) Bank Acceptances. GPO, Washington, 61st Congress, 2nd Session, Senate Doc. 569Google Scholar
  22. James J (1995) The Rise and Fall of the Commercial Paper Market, 1900–1930. In: Bordo M, Sylla R (eds) Anglo-American Financial Systems. Irwin, New York, pp 219–260Google Scholar
  23. Jones G (1995) British Multinational Banking, 1830–1990. Oxford University Press, OxfordCrossRefGoogle Scholar
  24. King WTC (1936) History of the London Discount Market. Routledge and Sons, LondonGoogle Scholar
  25. King F (1989) History of the Hongkong and Shanghai Banking Corporation, Vol. 2, The Hong Kong Bank in the Period of Imperialism and War, 1895–1918. Cambridge University Press, CambridgeGoogle Scholar
  26. Kniffin WH Jr (1920) Commercial Paper, Acceptances, and the Analysis of Credit Statements: Practical Treatise on Commercial Paper, with Particular Reference to the Processes by which the Credit Risk is Determined where Such Instruments are Purchased as a Bank Investment, 2nd edn. Bankers Publishing Company, New YorkGoogle Scholar
  27. Lewis C (1938) America’s Stake in International Investments. Brookings Institute, WashingtonGoogle Scholar
  28. Liebowitz SJ, Margolis SE (1990) The Fable of the Keys. J Law Econ 33:1–25CrossRefGoogle Scholar
  29. Lindert PB (1969) Key Currencies and Gold 1900–1913, Princeton Studies in International Finance no. 24, International Finance Section, Department of Economics, Princeton UniversityGoogle Scholar
  30. Mehrling P (2010) The New Lombard Street: How the Fed Became the Dealer of Last Resort. Princeton University Press, PrincetonGoogle Scholar
  31. Michie R (2007) The City of London as a Global Financial Center. In: Cottrell P, Lange E, Olsson U (eds) Centres and Peripheries in Banking: The Historical Development of Financial Markets. Ashgate, London, pp 41–79Google Scholar
  32. Moulton BR (1990) An Illustration of a Pitfall in Estimating the Effects of Aggregate Variables on Micro Units. Rev Econ Stud 72(2):334–338Google Scholar
  33. Parrini C (1969) Heir to Empire: U.S. Financial Diplomacy, 1916–1923. University of Pittsburgh Press, PittsburghGoogle Scholar
  34. Phelps CW (1927) The Foreign Expansion of American Banks. Ronald Press, New YorkGoogle Scholar
  35. Roberts R, Kynaston D (2000) City State: How the Markets Came to Rule the World. Profile Books, LondonGoogle Scholar
  36. Robinson LR (1923a) Foreign Credit Facilities in the United Kingdom: A Sketch of Post-War Development and Present Status. Columbia University Press, New YorkGoogle Scholar
  37. Robinson LR (1923b) Foreign Credit Facilities in the United Kingdom$ A Sketch of Postwar Development and Present Status. Longman, Green, New YorkGoogle Scholar
  38. Rothbard MN (1963) America’s Great Depression. Van Nostrand, New YorkGoogle Scholar
  39. Sayers RS (1968) Gilletts in the London Money Market, 1867–1967. Clarendon, OxfordGoogle Scholar
  40. Silber W (2007) When Washington Shut Down Wall Street. Princeton University Press, PrincetonGoogle Scholar
  41. Stallings B (1987) Banker to the Third World. University of California Press, BerkeleyGoogle Scholar
  42. Triffin R (1960) Gold and the Dollar Crisis. Yale University Press, New HavenGoogle Scholar
  43. Truptil RJ (1936) British Banks and the London Money Market. Jonathan Cape, LondonGoogle Scholar
  44. Cleveland HB, Huertas TF (1985) Citibank, 1812–1970. Harvard University Press, CambridgeGoogle Scholar
  45. Vigreux P-B (1932) Le crédit par acceptation: Paris centre financier, with a foreword by J. Velay. Librairie des Sciences Politiques et Sociales, ParisGoogle Scholar
  46. Warburg P (1910) The Discount System in Europe. GPO, Washington, 61st Congress, 2nd Session, Senate Doc. 402Google Scholar

Copyright information

© Springer Science+Business Media, LLC 2011

Authors and Affiliations

  1. 1.University of CaliforniaBerkeleyUSA
  2. 2.International History and International Economics at the Graduate Institute of International Studies and DevelopmentGenevaSwitzerland

Personalised recommendations