The Rise and Fall of the Dollar, or When Did the Dollar Replace Sterling as the Leading International Currency?

31 Pages Posted: 16 Jul 2008 Last revised: 6 Mar 2022

See all articles by Barry Eichengreen

Barry Eichengreen

University of California, Berkeley; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Marc Flandreau

Fondation Nationale des Sciences Politiques - Institut d'Etudes Politiques de Paris; Centre for Economic Policy Research (CEPR)

Date Written: July 2008

Abstract

We present new evidence on the currency composition of foreign exchange reserves in the 1920s and 1930s. Contrary to the presumption that the pound sterling continued to dominate the U.S. dollar in central bank reserves until after World War II, we show that the dollar first overtook sterling in the mid-1920s. This suggests that the network effects thought to lend inertia to international currency status and to create incumbency advantages for the dominant international currency do not apply in the reserve currency domain. Our new evidence is similarly incompatible with the notion that there is only room in the market for one dominant reserve currency at a point in time. Our findings have important implications for our understanding of interwar monetary history but also for the prospects of the dollar and the euro as reserve currencies.

Suggested Citation

Eichengreen, Barry and Flandreau, Marc, The Rise and Fall of the Dollar, or When Did the Dollar Replace Sterling as the Leading International Currency? (July 2008). NBER Working Paper No. w14154, Available at SSRN: https://ssrn.com/abstract=1161037

Barry Eichengreen (Contact Author)

University of California, Berkeley ( email )

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Berkeley, CA 94720
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National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
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Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Marc Flandreau

Fondation Nationale des Sciences Politiques - Institut d'Etudes Politiques de Paris ( email )

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Paris Cedex 07, 75337
France
+33 1 4046 7265 (Phone)
+33 1 4407 0750 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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