Mutual Assistance between Federal Reserve Banks, 1913-1960 as Prolegomena to the TARGET2 Debate

46 Pages Posted: 5 Jul 2014

See all articles by Barry Eichengreen

Barry Eichengreen

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

Arnaud Mehl

European Central Bank (ECB)

Livia Chitu

European Central Bank (ECB)

Gary Richardson

University of California at Irvine; National Bureau of Economic Research

Multiple version iconThere are 2 versions of this paper

Date Written: May 19, 2014

Abstract

This paper reconstructs the forgotten history of mutual assistance among Reserve Banks in the early years of the Federal Reserve System. We use data on accommodation operations by the 12 Reserve Banks between 1913 and 1960 which enabled them to mutualise their gold reserves in emergency situations. Gold reserve sharing was especially important in response to liquidity crises and bank runs. Cooperation among reserve banks was essential for the cohesion and stability of the US monetary union. But fortunes could change quickly, with emergency recipients of gold turning into providers. Because regional imbalances did not grow endlessly, instead narrowing when region-specific liquidity shocks subsided, mutual assistance created only limited tensions. These findings speak to the current debate over TARGET2 balances in Europe.

Keywords: Monetary policy, Federal Reserve System, gold standard, liquidity and financial crises, risk sharing, TARGET2 balances

JEL Classification: F30, N20

Suggested Citation

Eichengreen, Barry and Mehl, Arnaud and Chitu, Livia and Richardson, Gary, Mutual Assistance between Federal Reserve Banks, 1913-1960 as Prolegomena to the TARGET2 Debate (May 19, 2014). ECB Working Paper No. 1686. Available at SSRN: https://ssrn.com/abstract=2438666

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)

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Centre for Economic Policy Research (CEPR)

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Arnaud Mehl

European Central Bank (ECB) ( email )

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Germany

Livia Chitu

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Gary Richardson

University of California at Irvine ( email )

3151 Social Science Plaza
Irvine, CA 92697-5100
United States

HOME PAGE: http://www.socsci.uci.edu/~garyr/welcome.html

National Bureau of Economic Research ( email )

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HOME PAGE: http://www.nber.org

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