The Federal Reserve, the Bank of England and the Rise of the Dollar as an International Currency, 1914-39
University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)
Graduate Institute of International and Development Studies (HEI)
November 1, 2010
BIS Working Paper No. 328
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.
Number of Pages in PDF File: 45
Keywords: Foreign Exchange Reserves, Network Externalities, Path Dependency, Money Markets
JEL Classification: N10, N22, N24, E58, F31, F34working papers series
Date posted: December 1, 2010
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