Sterling and the Stability of the International Monetary System, 1944-1971

Change log
Naef, Alain 

This dissertation studies the role of sterling during the Bretton Woods period (1944-1971). The Bretton Woods system has often been described as a dollar system with sterling having lost its relevance as reserve currency. However, despite being a secondary reserve currency and having lost importance, sterling was the ‘first line of defence for the dollar’ as contemporaries put it. They frequently stressed the fact that a sterling crisis would have consequences on the stability of the Bretton Woods system but economic historians have never tested this empirically. This dissertation argues that sterling played an important role in the stability of the international monetary system.

Foreign exchange market participants globally monitored sterling and US policymaker stepped in to avoid devaluation of the British currency. US support to sterling was mainly due to the fear of a British devaluation, which could trigger a run on the dollar. When the UK finally devalued the pound in 1967, it marked the beginning of an instable period for the international monetary system. The Gold Pool, a syndicate to defend the US gold parity, collapsed in 1968 and this prefigured the end of the Bretton Woods system.

This dissertation presents new data along with novel archival material from seven archives across continents to demonstrate how contagion from sterling to the dollar occurred. Modern econometric methods are used to analyse a new dataset with over 80,000 observations of offshore exchange rates, central bank intervention and reserves. This evidence shows that a secondary reserve currency can still play a key role in the stability of the international monetary system.

Chambers, David
Bank of England, foreign exchange intervention, foreign exchange market, international reserve currencies, Bretton Woods, FX, Sterling, dollar, central banks, financial history, United Kingdom, Federal Reserve Bank of New York, FOMC, Banque de France, Bank of France, Bank for International Settlements, Swiss National Bank, Black markets, Sterling devaluation, Monetary history, monetary policy, interest rates, Bank rate, capital controls, Economic history, central bank reserve management
Doctor of Philosophy (PhD)
Awarding Institution
University of Cambridge
ESRC full fellowship grant number KFW/10324121/0