Did the Structure of Trade and Foreign Debt Affect Reserve Currency Composition? Evidence form Interwar Japan

Mariko Hatase and Mari Ohnuki
Additional contact information
Mariko Hatase: Director and Senior Economist, History Section, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: mariko.hatase@boj.or.jp)
Mari Ohnuki: Associate Director and Economist, History Section, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: mari.oonuki@boj.or.jp)

No 09-E-15, IMES Discussion Paper Series from Institute for Monetary and Economic Studies, Bank of Japan

Abstract: Historical experience is often invoked in the modern debate on competition among reserve currencies, yet little is known about quantitative aspects or institutional features of reserve management. By drawing on newly obtained data on foreign exchange reserves, especially those broken down by currency, this paper explores the competition between the British pound sterling and the U.S. dollar for the status of leading reserve currency in Japan during the interwar period. We find that competition between these two currencies remained undecided and that their relative status alternated repeatedly. Historical materials and the results of econometric analysis suggest that the key factors explaining a choice of reserve currencies are trade volumes and the currency denomination of external debt. The latter criteria supported maintaining sterling fs status as a reserve currency for the interwar period, reflecting its considerable share in debt service generated through issues that had been launched when London was the sole international market. The stability of potential reserve currencies is shown to be crucial as well. We also find evidence of institutional factors, which include taxation, foreign exchange controls, and restrictions on financial activities.

Keywords: Foreign Exchange Reserves; Gold Exchange Standard; Exchange Rate; Trade Strucutre; Debt Structure; Japan (search for similar items in EconPapers)
JEL-codes: F31 F32 F33 F34 N20 N25 (search for similar items in EconPapers)
Date: 2009-06
New Economics Papers: this item is included in nep-his, nep-ifn and nep-mon
References: Add references at CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://www.imes.boj.or.jp/research/papers/english/09-E-15.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ime:imedps:09-e-15

Access Statistics for this paper

More papers in IMES Discussion Paper Series from Institute for Monetary and Economic Studies, Bank of Japan Contact information at EDIRC.
Bibliographic data for series maintained by Kinken ().