Chapter 6: Financial Crises
1 Michael J. Oliver For those who have studied the history of money over the very long run it is unsurprising that there have been recurrent ﬁnancial crises during the twentieth century. As Chancellor (1999) has recently reminded us in his book on ﬁnancial speculation, ﬁnancial crises have stretched back at least as far as Ancient Rome during the second century BC. In the fourth edition of his classic book, Manias, panics and crashes, Charles Kindleberger (2000) has shown that since 1618, there have been around 50 world-class manias and panics. The distinguishing feature of the ﬁnancial crises of the twentieth century, however, is that they continued to occur despite vigorous attempts to strengthen the international ﬁnancial architecture and when our understanding about nominal variables, ﬁnancial markets and banking structures has made enormous strides. For the less specialized reader, this might come as a surprise as it is well known that the Bretton Woods institutions that were set up in the wake of the crisis-ridden interwar years were designed to bolster the international monetary system and prevent a repetition of such crises. However, even in the heyday of Bretton Woods, when the supranational institutions were at the zenith of their power and international capital markets were relatively subdued, the frequency of currency crises was greater than in the interwar years although there was an absence of banking crises. Over the last 25 years, there has been an increased tendency for banking crises to spill over into the currency markets, creating...
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