DP5529 The Empirics of International Currencies: Historical Evidence

Author(s): Marc Flandreau , Clemens Jobst

Publication Date: March 2006

Keyword(s): international currencies , sterling , dollar , search theoretic approach to money , strategic externalities , persistence

JEL(s): F31 , N32

Programme Areas: International Macroeconomics

Initiatives: Economic History

Link to this Page: www.cepr.org/pubs/dps/DP5529.asp

Using a new database for the late 19th century, when the pound sterling circulated all over the world, this paper provides the first review of critical empirical issues in the economics of international currencies. First, we report evidence in favor of the search-theoretic approach to international currencies. Second, we give empirical support to strategic externalities. Third, we provide strong confirmation of the existence of persistence. Finally, we reject the view that the international monetary system is subject to pure path dependency in that it cannot remain locked into some past equilibrium. Our conclusion is that, for the late 19th century at least, money and trade were complements.