Central Banks as Architects: The Federal Reserve, the Bank of England, and the Rise of the Dollar as an International Currency, 1914-1939 1

This case speaks to several issues that arise in connection with central banking and monetary policy today. A first issue is international currency competition. It is widely argued that there is only room for one international currency in the global system. The theoretical assertion is that increasing returns to using a national currency in international transactions are strong; network externalities are pronounced. The empirical assertion is that the pound sterling dominated international transactions in the first half of the 20 th century, the dollar in its second half. In recent work we have shown that this last assertion is not accurate for foreign-exchange reserves: sterling and the dollar shared the reserve-currency role more or less equally in the 1920s and 1930s. 2