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Strained RelationsUS Foreign-Exchange Operations and Monetary Policy in the Twentieth Century$
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Michael D. Bordo, Owen F. Humpage, and Anna J. Schwartz

Print publication date: 2015

Print ISBN-13: 9780226051482

Published to Chicago Scholarship Online: September 2015

DOI: 10.7208/chicago/9780226051512.001.0001

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Exchange Market Policy in the United States

Exchange Market Policy in the United States

Precedents and Antecedents

(p.27) 2 Exchange Market Policy in the United States
Strained Relations

Michael D. Bordo

Owen F. Humpage

Anna J. Schwartz

University of Chicago Press

The modern distinction between foreign-exchange operations and monetary policies has precedents in actions that European authorities adopted during the gold standard years and antecedents in nineteenth century US history. In this chapter, we explain key historical events pushing the evolution of monetary policy and foreign-exchange operations prior to establishment of the US Exchange Stabilization Fund in 1934. Monetary-policy discretion existed under the classical gold standardand expanded under the interwar gold exchange standard as monetary authorities increasingly worried about domestic policy objectives. They sterilized gold flows and intervened. We also discuss theinstitutional development of the US foreign-exchange market, Nicholas Biddle’s early foreign-exchange interventions, the US Treasury’s post-CivilWar actions, and the Federal Reserve’s early foreign-exchange operations. These episodes informed modern foreign-exchange intervention.

Keywords:   gold standard, House of Brown, Nicholas Biddle, Second Bank of the United States, greenbacks, central-bank cooperation

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