Hostname: page-component-586b7cd67f-l7hp2 Total loading time: 0 Render date: 2024-11-22T20:36:37.188Z Has data issue: false hasContentIssue false
  • English
  • Français

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]
Get access

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

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Aizenman, J. and Lee, J. (2006). Financial versus monetary mercantilism − long run view of large international reserves hoarding. NBER Working Paper 12718.CrossRefGoogle Scholar
Aizenman, J. and Lee, J. (2007). International reserves: precautionary versus mercantilist views, theory and evidence. Open Economies Review 18 (2), pp. 191–214.Google Scholar
Bank for International Settlements (1932). The gold exchange standard. Unpublished document, 26 October 1932. Basel.Google Scholar
Banque Française d'Acceptation (undated). Le Crédit par acceptation en francs sur Paris. Paris: Banque Française d'Acceptation.Google Scholar
Ben-Bassat, A. (1980). The optimal composition of foreign exchange reserves. Journal of International Economics 10 (2), pp. 285–95.CrossRefGoogle Scholar
Bernanke, B. (ed.) (2000). Essays on the Great Depression. Princeton: Princeton University Press.Google Scholar
Bernanke, B. and Mihov, I. (2000). Deflation and monetary contraction in the Great Depression: an analysis by simple ratios. In Bernanke, B. (ed.), Essays on the Great Depression. Princeton, NJ: Princeton University Press, pp. 108–60.CrossRefGoogle Scholar
Blancheton, B. (2001). Le pape et l'empereur: la Banque de France, la direction du trésor et la politique monétaire de la France (1914–1928). Paris: Albin Michel.Google Scholar
Board of Governors of the Federal Reserve System (1943). Banking and Monetary Statistics, 1914–1941. Washington, DC: Federal Reserve System.Google Scholar
Bouvier, J. (1989). A propos de la stratégie d'encaisse (or et devises) de la Banque de France de juin 1928 à l'été 1932. In Bouvier, J. (ed.), L'historien sur son métier. Paris: Editions des Archives Contemporaines.Google Scholar
Eichengreen, B. J. (1984). Central bank cooperation under the interwar gold standard. Explorations in Economic History 21 (1), pp. 64–87.CrossRefGoogle Scholar
Eichengreen, B. J. (1990). Elusive Stability: Essays in the History of International Finance, 1919–1939. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
Eichengreen, B. J. (1992). Golden Fetters: The Gold Standard and the Great Depression, 1919–1939. Oxford: Oxford University Press.Google Scholar
Eichengreen, B. J. and Flandreau, M. (2009). The rise and fall of the dollar (or when did the dollar replace sterling as the leading international currency?) This volume.CrossRefGoogle Scholar
Eichengreen, B. J. and Jeanne, O. (2000). Currency crisis and unemployment: sterling in 1931. In Krugman, P. (ed.), Currency Crises. Chicago: University of Chicago Press, pp. 7–46.Google Scholar
Eichengreen, B. J. and Sachs, J. D. (1985). Exchange rates and economic recovery in the 1930s. Journal of Economic History 45 (4), pp. 925–46.Google Scholar
Einzig, P. (1931). The Fight for Financial Supremacy. London: Macmillan.Google Scholar
Einzig, P. (1932). Behind the Scenes of International Finance. London: Macmillan.Google Scholar
Einzig, P. (1937). The Theory of Forward Exchange. London: Macmillan.Google Scholar
Fischer, S. J. and Lie, M. C. (2004). Asset allocation for central banks: optimally combining liquidity, duration, currency and non-government risk. In Bernadell, C., Cardon, P., Coche, J., Diebold, F. X. and Manganelli, S. (eds.), Risk Management for Central Bank Foreign Reserves. Frankfurt am Main: European Central Bank, pp. 75–95.Google Scholar
Flandreau, M. (1997). Central bank cooperation in historical perspective: a sceptical view. Economic History Review 50 (4), pp. 735–63.Google Scholar
François-Marsal, F. (1930–1). Encyclopédie de Banque et de Bourse. Paris: Imprimerie Crété.Google Scholar
Hallwood, C. P., MacDonald, R. and Marsh, I. W. (1996). Credibility and fundamentals: were the classical and interwar gold standards well-behaved target zones? In Bayoumi, T., Eichengreen, B. J. and Taylor, M. P. (eds.), Modern Perspectives on the Gold Standard. Cambridge: Cambridge University Press, pp. 129–61.Google Scholar
Hallwood, C. P., MacDonald, R. and Marsh, I. W. (1997). Crash! Expectational aspects of the departures of the United Kingdom and the United States from the inter-war gold standard. Explorations in Economic History 34 (2), pp. 174–94.Google Scholar
Hallwood, C. P., MacDonald, R. and Marsh, I. W. (2000). An assessment of the causes of the abandonment of the gold standard by the US in 1933. Southern Economic Journal 67 (2), pp. 448–59.Google Scholar
Hallwood, C. P. and Marsh, I. W. (2004). Exchange market pressure on the pound−dollar exchange rate: 1925–1931. North American Journal of Economics and Finance 15 (2), pp. 249–64.CrossRefGoogle Scholar
Hawtrey, R. G. (1922). The Genoa resolutions on currency. Economic Journal 32 (127), pp. 290–304.CrossRefGoogle Scholar
Hawtrey, R. G. (1932). The Art of Central Banking. London: Longmans, Green & Co.Google Scholar
Hsieh, C.-T. and Romer, C. D. (2006). Was the Federal Reserve constrained by the gold standard during the Great Depression? Evidence from the 1932 open market purchase program. Journal of Economic History 66 (1), pp. 140–76.Google Scholar
International Conference of Economic Services (1934). International Abstract of Economic Statistics, 1919–1930. London: International Conference of Economic Services.Google Scholar
International Statistical Institute, Permanent Office (1938). International Abstract of Economic Statistics, 1931–1936. The Hague: International Statistical Institute.Google Scholar
Johnson, H. C. (1997). Gold, France and the Great Depression, 1919–1932. New Haven: Yale University Press.Google Scholar
Keynes, J. M. (1925). The Economic Consequences of Mr. Churchill. London: L. & G. Woolf.Google Scholar
Kindleberger, C. P. (1986). The World in Depression, 1929–1939. Berkeley: University of California Press.Google Scholar
Krugman, P. (1987). Trigger strategies and price dynamics in equity and foreign exchange markets. NBER Working Paper 2459.Google Scholar
League of Nations (1932). Report of the Gold Delegation of the Financial Committee of the League of Nations. Geneva: League of Nations.Google Scholar
Markowitz, H. M. (1952). Portfolio selection. Journal of Finance 7 (1), pp. 77–91.Google Scholar
Markowitz, H. M. (1987). Mean-variance Analysis in Portfolio Choice and Capital Markets. Oxford: Blackwell.Google Scholar
McKinnon, R. I. (2005). Exchange Rates under the East Asian Dollar Standard: Living with Conflicted Virtue. Cambridge, MA: MIT Press.Google Scholar
McKinnon, R. I. and Schnabl, G. (2003). China: a stabilizing or deflationary influence in East Asia? The problem of conflicted virtue. Working paper, Stanford University 03007.Google Scholar
McKinnon, R. I. and Schnabl, G. (2004). The return to soft dollar pegging in East Asia? Mitigated conflicted virtue. International Finance 7 (2), pp. 169–201.CrossRefGoogle Scholar
Mlynarski, F. (1929). Gold and Central Banks. New York: Macmillan & Co.Google Scholar
Mouré, K. J. (1991). Managing the Franc Poincaré: Economic Understanding and Political Constraint in French Monetary Policy, 1928–1936. Cambridge: Cambridge University Press.Google Scholar
Mouré, K. J. (2002). The Gold Standard Illusion: France, the Bank of France and the International Gold Standard, 1914–1939. Oxford: Oxford University Press.Google Scholar
Nurkse, R. (1944). International Currency Experience: Lessons of the Interwar Period. Geneva: League of Nations.Google Scholar
Officer, L. H. (1996). Between the Dollar-Sterling Gold Points: Exchange Rates, Parity and Market Behavior. Cambridge: Cambridge University Press.Google Scholar
Papaioannou, E., Portes, R. and Siourounis, G. (2006). Optimal currency shares in international reserves: the impact of the euro and the prospects for the dollar. Journal of the Japanese and International Economies 20 (4), pp. 508–47.Google Scholar
Rodrik, D. (2006). The social cost of foreign exchange reserves. International Economic Journal 20 (3), 253–66.Google Scholar
Sicsic, P. (1993). The inflow of gold to France from 1928 to 1934. Banque de France. Notes d'Etudes et de Recherche 22.Google Scholar
Svensson, L. (1991). The simplest test of target zone credibility. IMF Staff Papers 38, pp. 655–65.CrossRefGoogle Scholar
Svensson, L. (1993). Assessing target zone credibility: mean reversion and devaluation expectations in the ERM, 1979–1992. European Economic Review 37 (4), pp. 763–802.Google Scholar
Temin, P. (1989). Lessons from the Great Depression. Cambridge, MA: MIT Press.Google Scholar
Temin, P. (1993). Transmission of the Great Depression. Journal of Economic Perspectives 7 (2), pp. 87–102.CrossRefGoogle Scholar