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The sterling trap: foreign reserves management at the Bank of France, 1928–1936

Published online by Cambridge University Press:  03 December 2009

OLIVIER ACCOMINOTTI
OLIVIER ACCOMINOTTI*
Affiliation:
Sciences Po, Paris, and University of California, Berkeley, [email protected]
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Abstract

French reserves policy during the interwar years has been heavily criticised because of its consequences for other countries. This article presents new monthly data on the Bank of France's foreign reserves currency composition between 1928 and 1936, and identifies the motivations behind reserves policy. The Bank of France's aim was to limit the risk of capital loss on its foreign portfolio. The determining factor in its portfolio allocation decisions was the credibility of reserves currencies on the exchange market. Credibility issues explain both the sale of pounds against dollars during 1929 and 1930 and the massive conversion of foreign holdings into gold from 1931 on. However, due to the huge volume of its reserves, the Bank also had to consider the effects of its own actions on the market. Its cooperative attitude towards sterling in the months before British devaluation can be explained through its market position. The Bank of France's portfolio choice was that of a large player in a low-credibility international monetary system.

Type
Research Article
Information
European Review of Economic History , Volume 13 , Issue 3: Foreign Exchange Reserves and the International Monetary System , December 2009 , pp. 349 - 376
Copyright
Copyright © European Historical Economics Society 2009

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