The Federal Reserve, the Bank of England and the Rise of the Dollar as an International Currency, 1914-39

45 Pages Posted: 1 Dec 2010

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

Centre for Economic Policy Research (CEPR)

Date Written: November 1, 2010

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: Foreign Exchange Reserves, Network Externalities, Path Dependency, Money Markets

JEL Classification: N10, N22, N24, E58, F31, F34

Suggested Citation

Eichengreen, Barry and Flandreau, Marc, The Federal Reserve, the Bank of England and the Rise of the Dollar as an International Currency, 1914-39 (November 1, 2010). BIS Working Paper No. 328. Available at SSRN: https://ssrn.com/abstract=1717802 or http://dx.doi.org/10.2139/ssrn.1717802

Barry Eichengreen (Contact Author)

University of California, Berkeley ( email )

310 Barrows Hall
Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Marc Flandreau

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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