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We're continuing our look at monetary conditions in the 1913-1941
period.
August
3, 2014: The Reichsbank, 1924-1941
July 27, 2014: The Bank of France, 1914-1941
July
20, 2014: The Bank of England, 1914-1941
January
...
26, 2014: The Federal Reserve in the 1930s #2: Interest Rates
target="_blank" January
...
19, 2014: The Federal Reserve in the 1930s
target="_blank" July
18, 2014: Foreign Exchange Rates 1913-1941 #8: A Brief Summary
target="_blank" December
...
23, 2012: The Federal Reserve in the 1920s 4: The Historical
Record
target="_blank" December
...
16, 2012: The Federal Reserve in the 1920s 3: Balance Sheet and
Base Money
November
...
25, 2012: The Federal Reserve in the 1920s 2: Interest Rates target="_blank"
November
...
18, 2012: The Federal Reserve in the 1920s
The source of our data is the Federal Reserve Banking and
Monetary Statistics, 1914-19 target="_blank"41.
http://fraser.stlouisfed.org/publication/?pid=38
We're going to start with some basic data. Alas, more analysis will
have to follow later. Here is a chart of all the countries listed in
the Banking and Monetary Statistics tables. We can see
immediately that there are only a few countries with significant
amounts of gold bullion. Remember, this is government and central
bank holdings combined. I decided to focus on just a few, which I
call the "majors": U.S., France, Germany, Italy, Japan, Netherlands,
Spain, Switzerland, and U.K. Russia was a biggie before 1913, but
lost most of its gold during WWI and the Communist Revolution. The
Soviet Union later rebuilt its gold bullion holdings to some degree,
but I decided that wasn't necessarily too relevant given that it was
a Soviet system. Also, the Russia numbers are a little intermittent
and unreliable. Argentina also held substantial gold bullion
holdings, but I figured that Argentina was a somewhat peripheral
country in any case. Despite holding less bullion than some others,
I put Switzerland in the majors, in recognition of its special role
during this period.
I should mention that these gold bullion figures don't necessarily
have the significance that many attribute to them. In practice, it
doesn't really matter that much whether a country has a lot or a
little bullion, or whether that amount changes. What matters is the
value of the currency, and whether functional mechanisms are in
place to maintain a gold parity value. We've already looked at
several major central banks up close, and also many histories of
currency value.
This exercise is ultimately to demonstrate that, in fact, gold
holdings are somewhat irrelevant. So, don't go trying to project
importance to them that they don't have.
Our data source has annual data from 1913 to 1927, as of the
year-end. One thing we see here is that central bank/government
holdings, in aggregate, didn't really change all that much during
WWI, or the supposed "gold exchange standard" era of the 1920s.
There's a smooth rise throughout there, which is in line with mining
production and the gradual rise of central bank/government holdings
from about 1850 to a peak around 1950.
From mid-1928, we get monthly data, which is rather nice as this is
the beginning of the Great Depression era, with all of the currency
turmoil that we have been carefully documenting here. Again, despite
all the excitement, there isn't much change in the overall smooth
trend of accumulation of gold bullion by central banks and
governments. We've already looked at the increase in reserve
holdings by France, which made perfect sense as their reserve
holdings of government bonds were unfortunately being devalued at
that time.
The data continues to 1941. However, after 1938, the onset of World
War II, patchy data, and various reclassification schemes, make the
data somewhat problematic. Besides, the concerns of war by that time
are far more interesting. We've already seen some of the effects in
our currency histories. So, we are stopping at the end of 1938 here.
That's all for now. We'll have more on this topic later.
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