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Mutual Assistance between Federal Reserve Banks: 1913–1960 as Prolegomena to the TARGET2 Debate

Published online by Cambridge University Press:  27 August 2015

Barry Eichengreen ,
Arnaud Mehl ,
Livia Chitu  and
Gary Richardson
Barry Eichengreen
Affiliation:
Barry Eichengreen is Professor of Economics and Political Science, Department of Economics, University of California, Berkeley, 549 Evans Hall 3880, Berkeley, CA 94720–3880. E-mail: eichengr@econ.berkeley.edu.
Arnaud Mehl
Affiliation:
Arnaud Mehl is Principal Economist at the European Central Bank, Sonnenmanstrasse, 20, 60314, Frankfurt am Main, Germany. E-mail: arnaud.mehl@ecb.int.
Livia Chitu
Affiliation:
Livia Chiţu is Economist at the European Central Bank, Sonnenmanstrasse, 20, 60314, Frankfurt am Main, Germany. E-mail: livia.chitu@ecb.int.
Gary Richardson
Affiliation:
Gary Richardson is Professor of Economics, Department of Economics, University of California Irvine, 3151 Social Science Plaza, Irvine, CA 92697–5100. E-mail: garyr@uci.edu.
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Abstract

This article reconstructs the history of mutual assistance among Federal Reserve Banks. We present data on accommodation operations through which Reserve Banks mutualized gold reserves in emergency situations between 1913 and 1960. Reserve sharing was important in response to liquidity crises and bank runs. Such cooperation was essential for the cohesion of the U.S. monetary union. But fortunes could change, with emergency recipients of gold becoming providers. Because imbalances did not endlessly grow, instead narrowing when region-specific shocks subsided, mutual assistance created only limited tensions. These findings speak to the current debate over TARGET2 balances in Europe.

Type
Articles
Information
The Journal of Economic History , Volume 75 , Issue 3 , September 2015 , pp. 621 - 659
Copyright
Copyright © The Economic History Association 2015 

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Footnotes

The authors are grateful to the co-editor (Paul Rhode), two anonymous referees, Ulrich Bindseil, Philippine Cour-Thimann, Robert Hetzel, J. P. Koning, Allan Meltzer, Kenneth West, Frank Westermann, Adalbert Winkler, Alexander Wolman and participants in the workshop on monetary and financial history organised by the Federal Reserve Bank of Atlanta on 24–27 June 2013 and in the conference on “The European Crisis – Causes and Consequences” organised by the University of Bonn and the CEPR on 20–21 June 2014 for comments. They are also grateful to Paul de Grauwe, Philipp Hartmann, and John Williams for helpful discussions. The views expressed in this article are those of the authors and do not necessarily reflect those of the ECB, the Eurosystem, or the Federal Reserve System.

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