An International Lender of Last Resort? The U.K. And France in the Early Nineteenth Century

This paper explores the actions of the Bank of England and the Banque de France in promoting international economic stability during the mid-nineteenth century. The evidence presented below indicates that the Bank of England acted in concert with the Bank of France, through France’s reliance on a bimetallic standard, to stabilize markets. The Bank of France could assist the Bank of England in a crisis by providing additional silver reserves, which allowed the Bank of England to create additional money. Excerpts of testimony before committees of the British Parliament and tests of cointegration between central bank balance sheet data variables from 1820-56 indicate that the Bank of England relied upon silver inflows from abroad during a crisis. Besides contributing new insights on the role of the central bank in maintaining financial stability in the mid-nineteenth century, the results have implications for today’s policymakers considering the existence of a modern international lender of last resort.