Currency Black Markets and Historical Turning Points: ‘Free’ Sterling in New York and Switzerland in the 1940s
90 Pages Posted: 25 May 2017 Last revised: 26 May 2017
Date Written: May 22, 2017
While fixed exchange rates were implemented during and after the Second World War, trading of national currencies at free market rates continued in Switzerland and New York. This paper analyses new daily time series data from these two markets for three currencies: British pound sterling (‘free’ sterling), U.S. dollar, and Swiss franc. Archival evidence from the Bank of England and New York Federal Reserve Bank shows that during the 1940s many of the largest commercial banks and financial houses were active in these markets and that trading volumes were significant. Statistical breakdate tests performed using daily exchange rate time series data provide a market perspective on key turning points during and after the Second World War. The data suggest that sterling’s exchange rate in Switzerland approximated the currency’s true market value at the time of the 1949 devaluation, and that British officials used the free market as a reference to fix sterling’s new official exchange rate.
Keywords: currency black markets, parallel currencies, exchange rates, pound sterling, U.S. dollar, Swiss franc, free sterling, wartime markets, Second World War, New York, Zurich
JEL Classification: F31, N24, N44
Suggested Citation: Suggested Citation