Back Matter
  • 1 https://isni.org/isni/0000000404811396, International Monetary Fund
  • | 2 https://isni.org/isni/0000000404811396, International Monetary Fund

Data appendix

We use standard and well-established data sources for control variables, GDP and trade. All data are annual. The foreign reserve data (gold and non-gold) are taken from International Financial Statistics (IFS) published by the International Monetary Fund. According to the Bretton Woods agreement, countries had to provide such data to the IMF. The IMF was in charge of building a coherent and harmonized definition of foreign reserves across countries. Reserve data cover all monetary authorities (central bank, treasury and any other parastatal organization which had a role in foreign exchange intervention on the behalf of the State).33 Monetary statistics are also taken from IFS. Series of money are also published in Mitchell (2013) with the distinction between banknotes (i.e. currency in circulation) and total M1 (banknotes, short-term deposits with the central bank and other monetary institutions). Given data limitations for the Bretton Woods period, we use M1 instead of M2. M1 does not include long-term deposits.

A tedious task has been to convert all nominal values in the domestic currency of 1971, such that we can have comparable ratios across countries. Since foreign reserves are expressed in US dollars, we use exchange rates from IMF statistics (end of the year) to convert them. Monetary statistics are expressed in the domestic currency of the contemporaneous year (in many countries the currency has changed over time). Nominal GDP and trade data from Penn World Table are expressed in domestic currency of 2014. To obtain comparable values, we track changes in currency denomination using paper volumes of the International Financial Statistics published monthly since 1946 and converted all values in the domestic currency of 1971. Overall, our sample covers 38 countries, for a total of 729 observations.34

TABLE A.1:

SAMPLE AND DESCRIPTIVE STATISTICS

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1

The views expressed in this paper are those of the authors and do not represent the views of the IMF, the Banque de France or the Eurosystem. We thank seminar participants at the Banque de France, EHES conference in Pisa, EHS conference in Cambridge, ASSA meetings in San Francisco, London School of Economics, Paris School of Economics, University Paris 1, University of Geneva, Bank of Spain, Business History conference in Baltimore, European Macro-History workshop in York and World Bank’s Annual Bank Conference on Development Economics for their comments. We are grateful to Michael Bordo, Olivier Jeanne, Alain Naef, François Keslair, Pierre Sicsic, Miklos Vari, Lars Jonung, Carsten Burhop, Matthias Morys, Tobias Straumann, Peter Conti-Brown, Soledad Martinez-Peria and Andrea Presbitero for useful discussions.

4

Some countries did not have a central bank, implying that the Treasury was the “monetary authority”. In some countries, the management of foreign reserves was performed by the central bank on behalf of the Treasury. In the remainder of the paper, we refer interchangeably to central banks and monetary authorities.

6

Our sample represents, on average, 94 percent of gold reserves held outside of the United States over the Bretton Woods era.

7

Corporate culture, which is close to what Camerer and Malmendier (2007) call “corporate repairs”, is a familiar concept to business historians (Lipartito 1995, Rowlinson and Procter 1999) who have studied the transmission of norms within an organization over time.

8

See for instance Eichengreen, Mehl and Chitu (2017), Farhi and Maggiori (2017), Bordo et al. (2017), Bordo and McCauley (2018), Gourinchas et al. (2019). Our argument is different from Bordo and Eichengreen (1998) and Eichengreen et al. (2017) who highlight autocorrelation in the level of gold and other international reserves in the XXth century. Our main result is not about path-dependency of the level of the gold stock itself but about the persistence of the practice to back currency by gold reserves.

9

The full quote is “it is of course possible that countries may actually determine their reserve holdings with reference to their money supplies even if this is an irrational act based on traditional superstitions, but there is no persuasive evidence that they do.” (Williamson, 1973, p.689)

10

See Bordo (1993, 2017) and James (1996) for a description of the operations and key issues of the system. See Bordo & Eichengreen (1993), Schuler and Rosenberg (2012), Helleiner (2014) and Scott-Smith and Rofe (2017) for more detailed accounts of the conference and the subsequent events.

11

Strong limits were also imposed on gold holding and gold transactions by citizens and firms. Some countries, like the US and the UK, forbade private holding of gold entirely (Kriz 1959).

12

A few countries (Belgium and Switzerland) did not change their central bank statuses and maintained a legal gold cover ratio (Aufricht 1967, Bordo & Eichengreen 1998), although there is no evidence that they were committed to respect it. They were set at 33 percent (Belgium) and 40 percent (Switzerland) of notes in circulation. Gilbert (1968, p. 7) notes that “this legal provision is a leftover from the days gold coins were in active circulation and has little relation to present-day conditions”. We will show below that other countries followed similar policies, even if they were not constrained by law.

13

In practice, most of the settlements were made in foreign currencies – the dollar mostly and, to a minor extent, the pound sterling.

14

Speech by Lord Keynes on the International Monetary Fund debate, May 23, 1944. Hansard Parliamentary Debates, House of Lords, 5th Series, Vol. CXXXI, Cols. 838–49.

15

Based on the amount of gold held by central banks and the rate of return on T-bills between 1950 and 1971, we estimate an average opportunity cost of 0.2 percent of GDP per year per country.

16

Although central banks had little opportunity to buy gold in 1944 – except at the US gold window – it changed when the London gold market reopened in 1954 (Kriz 1959, Kenen 1963, Bordo et al. 2017). It was then easier for central banks to replenish their gold stocks if they wanted to. From the mid-1960s onwards, various mechanisms between central banks were designed to avoid a further increase in non-U.S. gold stocks (James 1996, Bordo et al. 2017). It temporarily reduced the accumulation rate of other countries (Figure 1), but ultimately proved insufficient.

17

A very uneven reconstruction of gold holdings could be rationalized by heterogenous expectations about the possibility of a dollar devaluation. In that case however, one would still need to rationalize why central banks held very different expectations in the first place. An alternative interpretation of this paper is to explore whether history and experience shaped such expectations, which in turn favored the use of old habits.

18

It led one of the most famous international economists of the times to argue that the only motive of reserve holding (both gold and foreign exchange) was to keep up with other countries and show strong political power (Machlup 1966).

19

To our knowledge and according to Williamson (1973), Courchene and Youssef (1967) is the only empirical study that documented a positive correlation between money and foreign reserves for this period. However, evidence was limited to country-by-country correlations between 1960 to 1965, and they did not discuss the hypothesis of currency in circulation being backed by gold reserves. More generally, econometric studies in that period were very limited and regressions, when used, were spurious because of unit roots.

20

These studies find a correlation between the total money supply (including deposits) and total foreign reserves (Obstfeld et al. 2010) but not between the money base (currency in circulation) and reserves. Aizenman & Inoue (2013) look at the determinants of gold reserves on the period 1979–2010 and find no correlation between gold reserves and the money supply.

21

The index is based on coding the text of IMF’s Annual Report on Exchange Arrangements and Exchange Restrictions (AREAER) since 1950. No de facto measure of capital account openness is available for this period.

22

The premium is the difference between the official exchange rate and the black-market exchange rate in New York (data from Reinhart and Rogoff (2004)). Such an undervaluation can be motivated by mercantilist purposes, with the exchange rate kept undervalued to promote exports (Aizenman and Lee 2008).

23

The index is a de facto measure which captures how much flexibility was allowed by multiple exchange rates. Under the Bretton Woods period, only Canada managed a free float for several years. Other countries had to maintain their peg within a 2 percent band. But several countries had multiple exchange rates, especially in the 1950s.

24

They interpret the first result as evidence of the buffer function of foreign reserves in a globalized world (protecting the domestic banking system against sudden capital outflows), and the second result as the absence of currency board (where monetary authority would back currency in circulation by foreign exchange reserves).

25

Building a database on central bank governors post-1970, Mishra and Reshef (2019) also experienced difficulties to find biographical information. In many cases, only the name of the governor is available. Biographical information was especially difficult to find in politically unstable countries where the governors of central banks changed almost every year. The information is also missing for some years in the few countries which did not have a central bank in the 1950s.

26

This result is reported in Section V, where we explore the determinants of non-gold reserves.

27

We set the gold standard variable to zero for countries that were not independent before WWII (i.e. colonies and British dominions), since they did not have full political sovereignty under the gold standard and did not experience as much continuity in their political system and administration (which is key to our memory hypothesis). However, our results are not sensitive to this assumption. When, for dominions and colonies, we set the gold standard variable to be equal to the one of the colonizing country, we find a slightly lower coefficient on the interaction term (0.44 against 0.48 in column 1, Table 2), but the significance is unchanged.

28

The coefficient attached to the gold standard variable (un-interacted) is negative. This captures the fact that, all else equal, gold standard countries had, on average, less gold than others at the start of Bretton Woods. This is mainly due to the large depletion of gold reserves during the war.

29

This reasoning does not apply to the US and the UK, the leaders of the conference. The US is, by construction, excluded from the estimation. We keep the United Kingdom in the estimations, but results are unchanged if excluded.

30

Since the variable “age” has mechanically a unit root in countries where the governors changed unfrequently, we use the average age of governors over the period, as plotted in Figure 3.

31

The only exception were interventions by the United States (and then by the Gold Pool) to stabilize the dollar price of gold on the London gold market (Bordo et al. 2017).

32

It is possible that, facing an increase in the domestic money supply due to international capital flows, the monetary authorities decide to increase their gold reserves to back the money supply. This phenomenon is not an endogeneity bias however, but a deliberate policy of the central bank to back money supply with gold.

33

Kenen (1963) and Naef (2017) highlight that some countries used various techniques to misreport their holding of foreign exchange reserves (although such practice should have led to IMF sanctions). As far as we are aware, such misreporting happened only for foreign exchange reserves. For instance, the Bank of England would report a higher level of foreign exchange by swapping dollars with the US Federal Reserve days before the publication of its balance sheet.

34

Due to some remaining irregular gaps in the data (especially monetary statistics in the early 1950s), our sample includes 729 observations rather than 798. For nine additional countries, we collected statistics on money, reserves, trade and GDP but were not able to have all the control variables. Results are similar if these countries are included in the estimations.

Do Old Habits Die Hard? Central Banks and the Bretton Woods Gold Puzzle
Author: Eric Monnet and Mr. Damien Puy