Where It All Began: Lending of Last Resort and the Bank of England During the Overend, Gurney Panic of 1866.

The National Monetary Commission was deeply concerned with importing best practice. One important focus was the connection between the money market and international trade. It was said that Britain’s lead in the market for “acceptances” originating in international trade was the basis of its sterling predominance. In this article, we use a so-far unexplored source to document the portfolio of bills that was brought up to the Bank of England for discount and study the behavior of the Bank of England during the crisis of 1866 (the so-called Overend-Gurney panic) when the Bank began adopting lending of last resort policies (Bignon, Flandreau and Ugolini 2011). We compare 1865 (a “normal” year) to 1866. Important findings include: (a) the statistical predominance of foreign bills in the material brought to the Bank of England; (b) the correlation between the geography of bills and British trade patterns; (c) a marked contrast between normal times lending and crisis lending in that main financial intermediaries and the “shadow banking system” only showed up at the Bank’s window during crises; (d) the importance of money market investors (bills brokers) as chief conduit of liquidity provision in crisis; (e) the importance of Bank of England’s supervisory policies in ensuring lending-of-last resort operations without enhancing moral hazard. An implication of our findings is that Bank of England’s ability to control moral hazard for financial intermediaries involved in acceptances was another reason for the rise of sterling as an international currency.

Where It All Began: Lending of Last Resort and the Bank of England during the Overend, Gurney Panic of 1866

The National Monetary Commission was deeply concerned with importing best practice. One important focus was the connection between the money market and international trade. It was said that Britain’s lead in the market for “acceptances” originating in international trade was the basis of its sterling predominance. In this article, we use a so-far unexplored source to document the portfolio of bills that was brought up to the Bank of England for discount and study the behavior of the Bank of England during the crisis of 1866 (the so-called Overend- Gurney panic) when the Bank began adopting lending of last resort policies (Bignon, Flandreau and Ugolini 2011). We compare 1865 (a “normal” year) to 1866. Important findings include: (a) the statistical predominance of foreign bills in the material brought to the Bank of England; (b) the correlation between the geography of bills and British trade patterns; (c) a marked contrast between normal times lending and crisis lending in that main financial intermediaries and the “shadow banking system” only showed up at the Bank’s window during crises; (d) the importance of money market investors (bills brokers) as chief conduit of liquidity provision in crisis; (e) the importance of Bank of England’s supervisory policies in ensuring lending-of-lastresort operations without enhancing moral hazard. An implication of our findings is that Bank of England’s ability to control moral hazard for financial intermediaries involved in acceptances was another reason for the rise of sterling as an international currency.

Foreign Exchange Reserve Management in the 19 th Century: The National Bank of Belgium in the 1850s

International audienceAs well as the current one, the wave of globalization culminated in 1913 was marked by increasing accumulation of foreign exchange reserves. But what did 'reserves' mean in the past, how were they managed, and how much relevant are the differences between then and now? This paper is the first attempt to investigate 19 th-century reserve management from central banks' perspective. Building on a significant case study (the National Bank of Belgium, i.e. the 'inventor' of foreign exchange policy, in the 1850s), it shows that risk management practices in the past differed considerably from nowadays. The structure of the international monetary system allowed central banks to minimize financial risk, while poor institutional design enhanced operational risk: this is in stark contrast with the present situation, in which operational risk has been minimized and financial risk has considerably increased. Yet 19 th-century reserve management was apparently not conducive to major losses for central banks, while the opposite seems to have been the case in the 21 st century

Comment on: “Floating a “lifeboat”: The Banque de France and the crisis of 1889” by P.C. Hautcoeur, A. Riva, and E.N. White

International audience• Bagehot argued that lifeboats are always suboptimal.• Assessing systemicness is difficult.• Too much information is required to offset undesirable distributional effects.• Optimal lifeboats might be impossible to implement

The Bank of England as the World Gold Market-Maker During the Classical Gold Standard Era, 1889-1910

International audienceThis paper studies the microfoundations of the so-called "gold device" policy by analysing a new dataset on the Bank of England's operations in the gold market at the heyday of the classical gold standard. It explains that "gold devices" must be understood in connection to the Bank's role as gold market-maker in London and to the position of London as world gold market. Contrary to the literature, the paper shows that "gold devices" were sophisticated monetary policy tools intended to complement – not to substitute – interest rate policy and aimed at smoothing – not at hampering – international adjustment. These findings demonstrate the potential of adopting a microstructural approach to the study of monetary policy, and call for a reassessment of efficiency measurement for the gold standard

L’invention d’un système monétaire national : banques d’émission, supervision bancaire et développement financier en Belgique (1822-1872)

National audienceIn most 19th-century centralized states, national monetary unification has been attained thanks to the creation of provincial branch networks by banks of issue. Through a case study on Belgium, this paper investigates the causes and consequences of this phenomenon, as well as its operational implications. It shows that political pressure – aimed at reducing credit rationing, and hence at fostering economic development – was a key factor in pushing reluctant central bankers to extend their operations outside domestic financial centers. The success of monetary unification crucially depended on the incentive structure embedded in the implemented supervisory policies – aimed at reducing risk-taking in the provinces.Dans la plupart des Etats centralisés, l'unification monétaire nationale a été atteinte au XIXe siècle par la création de réseaux de succursales de la banque d'émission dans les provinces. A travers une étude de cas sur la Belgique, ce chapitre analyse les causes et les conséquences de ce phénomène, aussi bien que ses implications opérationnelles. Nous montrons que les pressions de nature politique (dont le but était celui de réduire le rationnement de crédit et donc favoriser le développement économique) ont été le facteur principal poussant les frileux banquiers centraux à étendre leurs opérations en dehors des centres financiers domestiques. Le succès du processus d'unification monétaire dépendait de la structure d'incitations créée par les politiques de supervision adoptées (dont le but était celui de réduire la prise de risque dans les provinces)

The origins of foreign exchange policy: the National Bank of Belgium and the quest for monetary independence in the 1850s

International audienceThe monetary policy trilemma maintains that financial openness, fixed exchange rates, and monetary independence cannot coexist. Yet, in the 1850s, Belgium violated this prediction. Through a study of nineteenth-century monetary policy implementation, this article investigates the reasons for such success. This was mainly built on the stabilisation of central bank liquidity, not of exchange rates as assumed by the target-zone literature. Other ingredients included: the role of circulating bullion as a buffer for central bank reserves, the banking system's structural liquidity deficit towards the central bank, and the central bank's size relative to the money market

The Political Economy of Central Banking: Historical Perspectives

International audienceThe question of the relationship between monetary and fiscal authorities seems to be more complex than the recent debate on central bank independence would suggest. In the simple framework inspired by Sargent and Wallace (1976), the recipe for establishing an untarnished confidence in central bank money consisted in severing all links between governments and central bankers. In reality, however, monetary and fiscal authorities can hardly be separated at all: in fact, they are the two sides of the same coin – which is, the modern state. The idea that monetary and fiscal authorities can live their lives oblivious of each other does not seem to be validated by historical evidence

The Coevolution of Money Markets and Monetary Policy, 1815–2008

International audienceMoney market structures shape monetary policy design, but the way central banks perform their operations also has an impact on the evolution of money markets. This is important, because microeconomic differences in the way the same macroeconomic policy is implemented may be non-neutral. In this paper, we take a panel approach in order to investigate both directions of causality. Thanks to three newly-collected datasets covering ten countries over two centuries, we ask (1) where, (2) how, and (3) with what results interaction between money markets and central banks has taken place. Our findings allow establishing a periodization singling out phases of convergence and divergence. They also suggest that exogenous factors – by changing both money market structures and monetary policy targets – may impact coevolution from both directions. This makes sensible theoretical treatment of the interaction between central bank policy and market structures a particularly complex endeavor

Where It All Began: Lending of Last Resort and Bank of England Monitoring During the Overend-Gurney Panic of 1866

International audienceThe National Monetary Commission was deeply concerned with importing best practice. One important focus was the connection between the money market and international trade. It was said that Britain's lead in the market for " acceptances " originating in international trade was the basis of its sterling predominance. In this article, we use a so-far unexplored source to document the portfolio of bills that was brought up to the Bank of England for discount and study the behavior of the Bank of England during the crisis of 1866 (the so-called Overend-Gurney panic) when the Bank began adopting lending of last resort policies (Bignon, Flandreau and Ugolini 2012). We compare 1865 (a " normal " year) to 1866. Important findings include: (a) the statistical predominance of foreign bills in the material brought to the Bank of England; (b) the correlation between the geography of bills and British trade patterns; (c) a marked contrast between normal times lending and crisis lending in that main financial intermediaries and the " shadow banking system " only showed up at the Bank's window during crises; (d) the importance of money market investors (bills brokers) as chief conduit of liquidity provision in crisis; (e) the importance of Bank of England's supervisory policies in ensuring lending-of-last-resort operations without enhancing moral hazard. An implication of our findings is that Bank of England's ability to control moral hazard for financial intermediaries involved in acceptances was another reason for the rise of sterling as an international currency