If you're so smart: John Maynard Keynes and currency speculation in the interwar years

This article explores the risks and returns to currency speculation during the 1920s and 1930s. We study the performance of two well-known technical trading strategies (carry and momentum) and compare them with that of a fundamentals-based trader: John Maynard Keynes. Technical strategies were highly profitable during the 1920s and even outperformed Keynes. In the 1930s, however, both technical strategies and Keynes performed relatively poorly. While our results reveal the existence of profitable opportunities for currency traders in the interwar years, they suggest that such profits were necessary compensation for enduring the substantial risks that all strategies entailed.David Chambers acknowledges the support of the Newton Centre for Endowment Asset Management, Judge Business School, and of a Keynes Fellowship from Cambridge University

Currency regimes and the carry trade

This study exploits a new long-run data set of daily bid and offered exchange rates in spot and forward markets from 1919 to the present to analyze carry returns in fixed and floating currency regimes. We first find that outsized carry returns occur exclusively in the floating regime, being zero in the fixed regime. Second, we show that fixed-to-floating regime shifts are associated with negative returns to a carry strategy implemented only on floating currencies, robust to the inclusion of volatility risks. These shifts are typically characterized by global flight-to-safety events that represent bad times for carry traders.We are indebted to Cambridge University’s Centre for Endowment Asset Management (CEAM), Cambridge Endowment for Research in Finance (CERF), and London School of Economics’ Research Infrastructure and Investment Funds (RIIF) for financial support

Introduction: new research in monetary history - A map

This handbook aims to provide a comprehensive (though obviously not exhaustive) picture of state-of-the-art international scholarship on the history of money and currency. The chapters of this handbook cover a wide selection of research topics. They span chronologically from antiquity to nowadays and are geographically stretched from Latin America to Asia, although most of them focus on Western Europe and the USA, as a large part of the existing research does. The authors of these chapters constitute, we hope, a balanced sample of various generations of scholars who contributed to what Barry Eichengreen defined as "the new monetary and financial history" – an approach that combines the analysis of monetary aggregates and policies with the structure and dynamics of the banking sector and financial markets. We have structured this handbook in ten broad thematic parts: the historical origins of money; money, coinage, and the state; trade, money markets, and international currencies; money and metals; monetary experiments; Asian monetary systems; exchange rate regimes; monetary integration; central banking and monetary policy; and aggregate price shocks. In this introduction, we offer for each part some historical context, a few key insights from the literature, and a brief analytical summary of each chapter. Our aim is to draw a map that hopefully will help readers to organize their journey through this very wide and diverse research area

International money markets: eurocurrencies

Eurocurrencies are international markets for short-term wholesale bank deposits and loans. They emerged in Western Europe in the late 1950s and rapidly reached a global scale. A Eurocurrency is a form of bank money: an unsecured short-term bank debt denominated in a currency (for instance, US dollars) but issued by banks operating offshore, in a geographical location or a legal space situated outside of the jurisdiction of the national authorities presiding over that currency (for instance, the Federal Reserve). In Eurocurrency markets, banks intermediate mainly between foreign residents. They borrow funds by "accepting" foreign currency deposits and lend foreign currency-denominated funds by "placing" deposits with other banks, by granting short-term loans or investing in other liquid assets. Historically, Eurodollars accounted for the largest share of Eurocurrencies, although other international currencies (Deutsche Marks, Japanese yens, and especially Euros since 1999) played an important role. Eurocurrency markets were a manifestation of financial integration and interdependence in a globalizing economy and performed critical functions in the distribution and creation of international liquidity. At the same time, their fast growth was a recurrent source of concerns for central bankers and policymakers due to their implications for macroeconomic policies and financial stability. This chapter analyzes different aspects of the historical development of Eurocurrency markets and their role in the international monetary and financial system. The first part discusses theoretical interpretations, presents estimates of markets' size, describes their structure, and explains the determinants of their growth. The second part analyzes the spread between Eurodollar rates and other US money market rates, the role of arbitrage, the evolution of risk factors, and the causes of historical episodes of stress and contagion in the interbank market. The last part discusses political economy issues, such as the role of governments and market forces in the emergence of Eurodollars in the 1950s and the failed attempts to impose multilateral controls on Eurocurrency markets in the 1970s

Black man's burden, white man's welfare: control, devolution and development in the British Empire, 1880–1914

This article organizes an economic analysis of the effects of colonial rule on capital market access and development. Our insights provide an interpretation of institutional variance and growth performance across British colonies. We emphasize the degree of coercion available to British authorities in explaining alternative set-ups. White colonies, with a credible exit option, managed to secure a better deal than those where non-whites predominated, for which we find evidence of welfare losses

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International monetary regimes: the interwar gold exchange standard

Historical accounts of the international monetary system generally oppose the classical gold standard of 1880-1914 and its interwar successor of 1925-1931. Whilst the pre-WW1 gold standard is usually described as a paragon of international monetary and price stability, its interwar version remains associated with memories of foreign exchange market turbulence, global deflation and, of course, the Great Depression. This chapter provides an overview of the interwar gold exchange standard system. How did this system emerge in the 1920s? How was it implemented in practice? Why did it collapse in the 1930s? And what was the link between the interwar gold exchange standard and the Great Depression

Industrial Leadership, Market Power and Long-Term Performance: Marshall’s and Keynes’s Appreciation of American Trusts

During their lives and careers, both Marshall and Keynes visited the United States and expressed views on American capitalism. Marshall visited the US in 1875, before the advent of the trust question, and then followed the development of the American industrial world, on which he gave his final word in Industry and Trade. Meanwhile, Keynes had begun to develop his own personal relationship with America, which became very close after his visits during the 1930s, when Keynes began to invest in Wall Street on a large scale. In this paper, we argue that there is “a family resemblance” in Marshall’s and Keynes’s views on America, as they shared a common appreciation of American trusts, weighting the advantages of a large industrial organization more than the loss of competitive edge. In 1875, Marshall was struck by the deliberateness and adaptability of the American people, and even though he expressed some scepticism about the future of trusts and big business during the 1890s, his confidence in the leaders of American industry and their dynamism resurfaced in Industry and Trade, where he described the leaders of big business in America as inspired by the same spirit of innovation he had observed in 1875. The ideas that Keynes expressed about Roosevelt and the New Deal, and his choices as an investor in the US market during the 1930s, seem to reflect a similar view. While we see no direct link connecting Keynes’s views on America during the 1930s with his apprenticeship with Marshall in 1905, we see this latter episode as the starting point of a longer process, in which Keynes could observe the evolution of Marshall’s opinions on America, possibly being influenced by it