This study exploits a new long-run data set of daily bid and offered exchange rates in spot and forward markets from 1919 to the present to analyze carry returns in fixed and floating currency regimes. We first find that outsized carry returns occur exclusively in the floating regime, being zero in the fixed regime. Second, we show that fixed-to-floating regime shifts are associated with negative returns to a carry strategy implemented only on floating currencies, robust to the inclusion of volatility risks. These shifts are typically characterized by global flight-to-safety events that represent bad times for carry traders.

This article explores the risks and returns to currency speculation during the 1920s and 1930s. We study the performance of two well-known technical trading strategies (carry and momentum) and compare them with that of a fundamentals-based trader: John Maynard Keynes. Technical strategies were highly profitable during the 1920s and even outperformed Keynes. In the 1930s, however, both technical strategies and Keynes performed relatively poorly. While our results reveal the existence of profitable opportunities for currency traders in the interwar years, they suggest that such profits were necessary compensation for enduring the substantial risks that all strategies entailed.

The Central European panic of the spring 1931 is often presented as a cause of the sterling crisis of September. But what was the transmission channel? This article explores how the continent's financial troubles affected Britain's banking system. The freeze of Central European assets created a liquidity strain for London merchant banks because they had accepted (guaranteed) the commercial bills of German merchants. I use new balance sheet data to quantify this shock and explore how the liquidity crisis contributed to the sterling crisis. The evidence demonstrates that international contagion was crucial in transmitting the 1931 global financial crisis.

French reserves policy during the interwar years has been heavily criticised because of its consequences for other countries. This article presents new monthly data on the Bank of France's foreign reserves currency composition between 1928 and 1936, and identifies the motivations behind reserves policy. The Bank of France's aim was to limit the risk of capital loss on its foreign portfolio. The determining factor in its portfolio allocation decisions was the credibility of reserves currencies on the exchange market. Credibility issues explain both the sale of pounds against dollars during 1929 and 1930 and the massive conversion of foreign holdings into gold from 1931 on. However, due to the huge volume of its reserves, the Bank also had to consider the effects of its own actions on the market. Its cooperative attitude towards sterling in the months before British devaluation can be explained through its market position. The Bank of France's portfolio choice was that of a large player in a low-credibility international monetary system.

This article organizes an economic analysis of the effects of colonial rule on capital market access and development. Our insights provide an interpretation of institutional variance and growth performance across British colonies. We emphasize the degree of coercion available to British authorities in explaining alternative set-ups. White colonies, with a credible exit option, managed to secure a better deal than those where non-whites predominated, for which we find evidence of welfare losses.

Textbook accounts of the Anglo-French trade agreement of 1860 argue that it heralded the beginning of a liberal trading order. This alleged success holds much interest from a modern policy point of view, for it rested on bilateral negotiations and most-favored-nation clauses. With the help of new data on international trade (the RICardo database), the authors provide empirical evidence and find that the treaty and subsequent network of MFN trade agreements coincided with the end of a period of unilateral liberalization across the world. They also find that it did not contribute to expanding trade at all. This is contrary to a deeply rooted belief among economists, economic historians, and political scientists. The authors draw a number of policy lessons that run counter to the conventional wisdom and raise skepticism toward the ability of bilateralism and MFN arrangements to promote trade liberalization.