The shift from sterling to the dollar, 1965–76: evidence from Australia and New Zealand

The management of foreign exchange reserves has recently attracted attention from both policy‐makers and historians. Historical research has focussed on the nineteenth century and the interwar period, with less attention to the strategies of smaller countries in the final transition from sterling to the dollar in the post‐1945 period. This article examines the evolution of reserve currency policy from the perspective of Australia and New Zealand in the 1960s and early 1970s. As in the 1930s, economic uncertainty and a shift in global economic power prompted changes in reserves strategy. Patterns of trade and debt and falling confidence in British economic policy prompted a move away from sterling, but the timing and extent of this transition were affected by the fragility of the sterling exchange rate, lack of alternative assets, and continued dependence on the London capital market. The choices for Australia and New Zealand were thus constrained, but they were able to leverage their position as holders of sterling to engage in agreements that provided an exchange rate guarantee for their sterling holdings and continued access to the London capital market. This mitigated the effect of the final global transition from sterling to the dollar while protecting their interests.     

British Capital and Merchandise Exports, 1870–1913: The Bilateral Case of New Zealand

The Ford thesis argued that there was a short‐term causal relationship between British overseas investment and British merchandise exports in the late nineteenth century. However, economic historians since Ford have found little empirical evidence in support of this argument. Using data on bilateral British lending, this article finds that such a relationship did exist, with British ex ante lending preceding merchandise exports by 2 years. A case study of New Zealand, which had an extraordinarily high share of Britain in its imports, reveals that the relationship was conditional upon the lending being allocated to social overhead capital.     

The liquidity of the London capital markets, 1825–70†

This article examines the liquidity of the London capital markets in the decades following the liberalization of UK incorporation law. Using comprehensive stock and bond data, we calculate a measure of market liquidity for the period 1825–70. We find that stock market liquidity trended upwards but bond market liquidity did not increase over the sample period. Stock market liquidity during our sample period was partially influenced by the bond market, rather than fluctuations in economic output. In our analysis of the cross‐sectional determinants of individual stock liquidity, we find that firm size and the number of issued shares were important determinants of liquidity.  Finally, we find little evidence of an illiquidity premium, which is consistent with the view that investors did not price liquidity in this nascent market.