Central bank cooperation 1930–2: A reappraisal

The literature on interwar monetary history has argued that the lack of central bank cooperation contributed to the pervasive economic outcome of the 1930s. The reasons for this failure are still an object of debate. In this paper, we revisit the attitude of individual central banks to the attempts led by the Bank for International Settlements (BIS) to institutionalize central bank cooperation. We present original archival evidence to show that the 1931 crisis in central Europe emerged as an exogenous shock, prompting the BIS to become an international lender of last resort and to increase the resources at its disposal. However, the BIS relied on member central banks’ discretionary behaviour, which was far from supportive. Whilst the literature has mainly focused on the core central banks’ negative attitude towards BIS lending of last resort operations, we observe a general reticence to foster the BIS's structural and autonomous capacity to provide stabilization loans. Whilst politics also played a role in periphery countries, a major claim of this paper is that central banks shared a significant concern about profit-making reserve management, thereby limiting the BIS's available resources and capacity to lend. We conclude that these structural weaknesses profoundly hindered a multilateral response to the crises of the 1930s.