The chapter examines the long story of depression and economic stagnation in Poland, with the country maintaining its commitment to the gold-exchange standard until the introduction of exchange controls in April 1936, after an intense political conflict, in which the BP management pleaded for a more liberal solution, involving devaluation and membership in the British sterling bloc. Poland’s economic performance during the 1930s stood out compared to other European countries, with a prolonged price and production decline. The trajectory was influenced by its strategic bets on France as a security partner and the US and the Swedish financier Ivar Kreuger as financial partners. The chapter demonstrates that there was no analogous mechanism to that which forced other Central European countries, but also Britain, Belgium, and eventually France off the gold standard: in all those cases financial panics and bank runs played a decisive role, but the Polish banking system was largely a state-owned and state-guaranteed system. There were runs and deposit losses in 1931 affecting private banks, but they were not large enough to constitute a systemic threat, and the BP quickly launched preventative rescue/bailout operations.

The chapter deals with the double stabilization of the mid-1920s: the first associated with the monetary reform of 1924, the introduction of the new currency, the złoty, and the establishment of a new central bank, the BP; the second with the final stabilization of the currency, at a new devalued parity, in October 1927. The second stabilization occurred much more than the first in consultation with foreign advisers, notably the American Edwin Kemmerer; the advisers were necessary not so much because of any technical expertise they brought, but because they held the key to unlocking foreign credits on the US market. The Polish policymakers insisted on avoiding an externally imposed stabilization and stabilization loan, whether of the type managed by the League of Nations for Austria and Hungary in 1922 and 1923, or a general international conference such as the London Conference of 1924 which provided the mechanism (the Dawes Plan) for ending the German inflation. The key to their response was a management of expectations through attacks on speculators in what was a very thin foreign exchange market.

Examines the financial and economic challenges facing the new Polish state, the Second Republic, including the integration of different institutional and monetary systems and the need for monetary stabilization. The postwar Polish inflation, which morphed into galloping inflation and then hyperinflation, had its origins in fiscal deficits directly monetized by the central bank. But there was a substantial difference of opinion on the best approach to monetary stabilization: either fiscal stabilization, or assistance from the outside through a foreign loan. Zygmunt Karpiński and Feliks Młynarski, the two men who decisively shaped the intellectual orientation of the new central bank, the Bank Polski (BP), emphasized the importance of a balanced budget as a prerequisite for monetary stabilization. They also conceived of introducing a new stable currency to run concurrently with the old depreciating currency: the new currency, the złoty, had in its name an explicit reference to gold.

The Introduction lays out the dilemma of modern central banks in terms of the “Odysseus contract” under which central bankers guide the ship of state safely through monetary turbulence, with wax stuffed in their ears so that they ignore calls for generosity and complaints about meanness, while the political master – Odysseus, the government, the people – agrees to be bound. Poland in the 1920s and again in the 1990s tried to establish such a central bank, in the wake of the reestablishment of the state. Important theorists conceptualized the central bank as part of an underground, alternative state, during moments of foreign rule: the nineteenth century division of Poland, the German occupation of 1939–45, and communist rule. Security considerations played a prominent role, and dictated the national importance of building up gold reserves, especially at moments of geopolitical strain.

This chapter analyzes the different banking models that were debated and adopted by the elites of the various Latin American nations after midcentury. The examples of the financial and monetary institutions of Europe were influential, but they were not simply replicated. In fact, there was a creative process of adaptation of foreign models of banking organization and regulation that were adjusted to local and regional situations in each country in a prolonged process of trial and error. In Chile and Colombia the advocates of the free banking model tended to gain the upper hand, whereas in Argentina and Brazil the supporters of a single bank of issue tended to dominate. The intense political and financial discussions in each country revealed strong differences between orthodox theorists, in favor of a strict gold standard, and pragmatists, who preferred the flexibility of inconvertibility. These confrontations remained characteristic of many later episodes in Latin American financial history and resonate down to the present day.

Fiscal states, defined by their capacity to tax and borrow, had to negotiate the dilemma of economic interdependence – how to balance the benefits of economic interdependence with the desire for as much strategic autonomy as possible. How different governments negotiated this dilemma revealed much about their position within the international economic order. Some states sought to repatriate debt by borrowing from their own citizens, others saw advantages in borrowing abroad. Fiscal capacity was shaped by economic interdependence and became yet another site of competition between states. States compared their fiscal capacity by looking at bond yields, savings rates, and trade. New categories of comparison such as national income emerged in the context of great power competition.

In recent years, historians have asked whether economic interdependence was slowing or accelerating before the First World War. This chapter analyses international trade and capital flows with a particular focus on Europe. It shows that trade was growing and that growth accelerated following the 1907 financial crisis and downturn. Financial flows also grew, but within Europe, diplomatic considerations had an increasing effect on the direction of capital flows. Contrary to some interpretations, this chapter argues that the Balkans were well-integrated into an increasingly interdependent European economy. Despite concerns about imperial barriers to trade, the share of third parties trade with European colonies increased more rapidly in many cases compared to the imperial metropole. This international economic order required institutions, notably the Gold Standard. These institutions elevated the importance of Britain in the global economy. Patterns of European migration changed significantly in the decades before 1914. Migration was important in key factors of power politics, from population size to financial remittances.

The Bank sought to deflect blame for the British slump in response to many critics, including John Maynard Keynes. Through correspondence and testimony before government commissions, its technical advisers provided an intellectual defense of the gold standard. However, as the prevailing monetary arrangements proved increasingly untenable as the interwar years progressed, economists and civil servants were forced to confront the flaws and instabilities endemic to the system. The subsequent 1931 crisis might have dealt a major blow to the authority of the central bank. Yet in its aftermath, experts began to devise new ways of thinking about the organization of the international financial system, as well as the Bank’s centrality within it.

After a brief introduction to the outbreak of the Austrian Credit Anstalt crisis in May 1931 and the early response by central bankers from Bank of England, the BIS and the New York Federal Reserve Bank, this chapter proceeds to present the book’s overall issues and main concepts, which will be used as a heuristic framework throughout the narrative. The main concepts of the book are radical uncertainty, sensemaking, narrative emplotment, imagined futures and epistemic communities. In the chapter, I discuss how these concepts are helpful in understanding central bankers’, and other actors’, decision-making and practices in the five month from May through September. The chapter also discusses my analytical strategy and presents the empirical material, which comes from the Bank of England, Bank for International Settlements, the Federal Reserve Bank of New York, the J.P. Morgan Archive, the Rothschild Archive and a few others. At the end of the chapter, I present the structure of the book.

Keynes began actively trading in currencies almost as soon as he had published The Economic Consequences. Despite the advantages of being the leading economic thinker of his generation and possessing an enviable network of contacts with policymakers, his speculation met with mixed results. This chapter examines two issues: first, the influence which Keynes’ understanding of the post-war international economic and political situation had on his foreign exchange speculation strategy; and, second, the influence his experience as a speculator had on his political-economic theory in the years following the publication of his book.

This chapter is an overview of central banking developments between 1919 and 1939, highlighting the establishment and operation of 28 new central banks, most in what are now called emerging markets and developing countries. Inspired by expert advice and underpinned by foreign lending, the new banks were designed to function independently from political interference, and to defend the gold standard as part an international, rules-based network of cooperating institutions. The Great Depression revealed the flaws in this setup. As capital flows dried up and international cooperation faltered, the gold standard disintegrated, and central banks were unable to head off macroeconomic and financial collapse. Designed to fight inflation, they were ill-prepared to address financial fragility. In the wake of their failure, a two-pronged reaction set in. Central bank autonomy was curtailed, while monetary policy was subordinated to new policy objectives, including the support of import substitution in Latin America and central planning in Eastern Europe. At the same time, central banks’ powers expanded, as they were transformed into agents of state-led development policy. Thus, the new central banks of the 1920s and 1930s were integrally involved not just in post-First World War reconstruction and the Great Depression, but also in the key economic developments of the mid-20th century.

This chapter asks how a new generation of central banks in the interwar period changed their function, away from state financing and financial stability provision, and toward stabilizing prices and avoiding fiscal and financial dominance. The new concept of a central bank as an institutional constraint, imposed from the outside, and movement from a “can do” to a “can’t do” institution, ultimately ended in failure. It made for bad policy and poor outcomes, specifically contributing failure to stem contagion in the 1931 financial crisis. After 1945 a new reinvention of central banking involved the elaboration of a social consensus that bought back ele-ments of the “can do” environment.

Established at the behest of the League of Nations to help the country secure an new international loan, the Bank of Greece was regarded with a mixture of suspicion and hostility from its very foundation. The onset of the Great Depression tested its commitment to defending the exchange rate against domestic pressure to reflate the economy. Its policy response has been criticized as being ineffectual and even detrimental: the bank is said to have been unduly orthodox and restrictive, not only during but also after the country’s eventual exit from the gold exchange standard. This chapter combines qualitative and quantitative sources to revisit the Bank of Greece’s decisions during the Great Depression. It argues that monetary policy was neither as ineffective nor as restrictive as its critics suggest, thanks to a continued trickle of foreign lending but also to the Bank’s own decision to sterilize foreign exchange outflows. It reappraises Greece’s attempt to maintain the gold standard after sterling’s devaluation, a decision routinely denounced as a policy mistake. Finally, it challenges the notion that Greece constitutes an exception to the rule that countries that shed their ‘golden fetters’ faster recovered earlier.

To date, research on Latin American central banks in the interwar years has focused on their loss of autonomy due to the slump and subsequent implementation of innovative, countercyclical monetary policies. These policies, although fostering economic recovery, led to higher rates of inflation and exchange-rate volatility. The chapter shows that these policies resulted from more than loss of autonomy and subordination of central banks to governments. In fact, the need for countercyclical monetary policies had been foreseen by foreign advisors to newly established central bank before and during the crisis, but Latin American central bankers had been reluctant to implement them for fear of damaging the credibility of the gold-standard regime. This finally changed with the collapse of the gold exchange standard. In the 1930s, central banks had become effective actors, channeling credit to the real economy and supporting the emergence of state institutions that would promote the development of local industry.

In the 1920s, the Bank of England promoted central banking to preserve London’s control over Indian financial policies and insulate those policies from political changes sweeping the colony. This chapter traces India’s deepening distrust of London in the monetary sphere, and the role envisaged by the Bank of England for an Indian central bank operating under its tutelage. After the failure of efforts to create a central bank in the 1920s, the Bank of England and Whitehall insisted on a privately owned, ‘independent’ central bank as a precondition for Indian constitutional reform. In the end, notions of an independent central bank did not stand up to the vicissitudes of colonial bureaucratic politics. Efforts of the colonial government and the Bank of England to curb the independence of the Reserve Bank of India offer important insights into the early history of central banking in India, but also shed new light on the role central banks in economies undergoing the transition from colonialism to independence.

The EU’s actions show how the exercise of extraterritorial jurisdiction by one actor (the EU) based on local approaches to human rights standards and specific values (privacy and the protection of personal data) could lead to the convergence of values and laws on the global stage. Likely directions are decreasing territorialism or broad interpretations of ‘territory’, increasing elevation of fundamental rights to the disadvantage of certain competing interests, and the EU acting to set a high global data protection norm, enabled by the fundamental right to data protection conditioning its exercise of extraterritorial jurisdiction. Convergence could be resisted. If, however, the EU’s reach were strong enough to avoid or counter resistance, this would ultimately lead to fewer conflicts in jurisdiction as global standards would converge and, even in the EU–US data privacy law interface, commonalities and shared approaches to rights protection would emerge.