March 30, 2023


The Imperial Fed

Colonial currencies and the pan-American origins of the dollar system

The Federal Reserve is commonly depicted as an institution set up to fulfill domestic functions, only later taking on its significant international and geopolitical dimensions. In this view, the Fed’s origins are found in various domestic concerns, such as bankers’ desire to cartelize themselves, exporters’ bid to make the American financial system more stable and liquid so as not to rely on London for loans, farmers’ project to break up New York’s “money trust” and spread financial services more evenly throughout the country, and the collective desire to put an end to the apparently endemic panic in US money markets.1

Although there is an abundant literature on the financial projection of US power (“Dollar Diplomacy”) whose main characters overlap conspicuously with the cast of domestic, Progressive Era reformers (“corporate liberalism”), the two narratives have yet to be integrated.2 Because the Fed’s opening was almost coincident with the first shots of the Great War, with the consequent enervation of European finance and the extension of American war loans, the story of the global rise of Wall Street typically includes geopolitics solely by reference to that conflict.3 But from their foundation, central banks have been embedded in the violence and hierarchy of the world-system. The history of America’s banking institutions demonstrates how global military and economic networks have shaped the development of nation states, as much as the reverse.

Global comparisons, interimperial competition, and the transnational flow of ideas were all present at the creation of America’s modern monetary apparatus. After an intensive study of European monetary history and colonial currencies, a cohort of corporate intellectuals decided the US needed a central bank to succeed in interimperial competition over currency blocs. Even though their initial reform efforts were blocked at home, the Spanish-American war opened up new opportunities to experiment in the periphery of America’s empire. Those experiments eventually came back home to inform the creation of the Fed.

The resulting dollar bloc was a hegemonic project. Its shape and trajectory had as much to do with Latin American resistance and terms of consent as it did with metropolitan blueprints for world order. To successfully court peripheral elites beyond those the US conquered, and to avoid detonating protests by the masses in those it did, US planners chose not to simply lay down terms of subordination. As a result, efforts to internationalize the dollar varied according to local conditions in Puerto Rico, the Philippines, Nicaragua, and other sites of the growing US colonial sphere. Puerto Rican riots and Mexican finance ministers are as much a part of this story as Princeton economics professors.4 These are the interimperial and Pan-American origins of the Federal Reserve and the world dollar.

The birth of an idea

In 1896, journalist Charles A. Conant published his magnum opus, A History of Modern Banks of Issue. A painstaking documentation of Europe’s advanced monetary authorities, the book consolidated over a decade of reporting in the Journal of Commerce. Conant argued that modernizing America’s financial arrangements was crucial to keeping up with advances elsewhere in the world. His activities, both theoretical and practical, created the framework within which the rest of the monetary reform process unfolded.

Conant’s cyclopean History covered over two thousand years of Europe’s monetary history in the major and minor powers, showing how state-backed banks of issue had a tendency to become banker’s banks—central banks. By its fourth edition in 1909, it included chapters on Canada, Mexico, Latin America, “Africa and Oceania,” “Japan and Korea,” “Banking and Exchange in the Orient,” and the US banking crisis of 1907. The US, Conant underscored, was the only major power to go without a central bank and as a consequence lagged behind its competitors.

Conant’s main aim was to prove to “thinking Americans” that “the currency of a commercial country should be regulated by commercial conditions, and not by the whims of politicians.” He began his narrative not with the Bank of England, founded in 1694, but with the infamous John Law episode of 1716-20 in France, in which a Scottish exile promised to modernize French political economy and, “carried away… by the grandeur of the new scheme,” wound up blowing massive financial bubbles instead, destroying the bank and the royal finances in the process.5 It was not hard to read between the lines here—his prime target was the Populists’ subtreasury plan, which aimed to revolutionize farm credit and took direct inspiration from French socialist Pierre-Joseph Proudhon’s proposals for a “people’s bank.”6

The alternative model, the privately owned Bank of England, had been rejected by Americans in the 1830s under Jackson. It appeared to Americans at the time like the relic of a pre-liberal, mercantilist British past, built to fund inter-absolutist warfare.7 Protected by two oceans with no great power rivals on its continent, republican America felt no need for such an institution.8 Why take the chance of emulating England when French political overreach was a more significant threat?

When the central banking debate reemerged at the turn of the twentieth century, the international context had changed entirely: the US was aspiring to great power status and state-backed banks of issue were universal. Conant noted that the inflection point in the arc of development for European central banking was the 1850s; with the exception of England and France, most of the modern banks of issue were products of the last half of the nineteenth century.9 Until then, coins had been fairly cosmopolitan, circulating far outside their country of origin, creating a patchwork of overlapping monetary circuits which did not neatly correspond to national boundaries. But innovations in minting technology that made counterfeiting more difficult, together with the new nationalist ideologies after 1848, spurred national monies. The move from cosmopolitan commodity money to national currencies and currency blocs meant that monetary management could no longer be left to mints and markets alone.10 Belgium led the way, pioneering the monetary management model in which the central bank was privately owned but the officers were chosen and overseen by the government.11 Linked to Paris through the Latin Monetary Union, Belgium’s central bank acquired a horde of French-franc-denominated assets that could be used to manage relative demand for the two francs. The value of French commercial paper was ultimately backed by the Bank of France, founded in 1800, making it as good as gold, but often cheaper. Unlike holding real gold, holding these assets paid interest. Increasingly, the gold supply that “backed” the Belgian franc was not held in the form of actual bullion in a Belgian vault, but rather took the form of paper claims on bullion held in a French vault.

The practice of stabilizing currencies by having a central bank accumulate foreign exchange became more widespread from the 1850s. Gold piled up in London and Paris, and for other countries it became normal for gold not to circulate within their borders. Claims on gold circulated across Eurasia in the form of national notes printed by banks of issue, and regulated according to the needs of foreign exchange markets. The Netherlands, Denmark, Sweden, Norway, Austria-Hungary, and Russia all managed the values of their currency by accumulating foreign exchange in Paris and London instead of acquiring gold directly.12 As maintaining a proper gold standard was expensive, while buying up and maintaining contingent claims on future gold was not, this practice, which came to be known as the Gold Exchange Standard (GES), became a way for less wealthy nations to simulate the stability offered by a gold standard. Accepting a lower position within the global monetary hierarchy was the price they paid for sound money.

For latecomers to the central banking scene—Japan, Austro-Hungary, and by the third edition of the History, Russia—this was the model to emulate. Japan was the most impressive student. Like Germany in the 1870s it began by demanding a war indemnity in gold after defeating China in 1895, which it then deposited in London and used to finance a GES, overseen by a Belgian-style central bank.13 This was how modern states built modern monetary empires.

Conant connected his historical account to an analysis of his own conjuncture. Late nineteenth century America was wracked by crises. The Long Depression, kicked off by the Panic of 1873, had barely ended when the panic of 1893 threw the country into a severe downturn once again. In The United States in the Orient, Conant argued that the only solution to these cyclical downfalls was a militarist reorganization of the US political economy—including the establishment of a modern monetary authority and expansion abroad. Before either Hobson or Lenin, Conant argued in “The Economic Basis of Imperialism” that advanced capitalist nations were doomed to over-accumulate capital, leading to over-competition and declining profits and interest rates, hence to lower rates of investment and lower effective aggregate demand, ultimately causing large and permanent rates of unemployment.14 Conant could only see one way out of this “congestion”—new investment outlets for US capital. Since the rest of the capitalist core was just as congested, such outlets would have to be found in the periphery. He was conscious that “the narrower policy pursued by France and Russia, of endeavoring to shut up their colonies [exclusively for] their own commerce” would make inter-imperial rivalry, and perhaps warfare, inevitable. Only the unique genius of Anglophone nations for setting up free-trade empires, according to Conant (apparently forgetting about the US’s own massive tariffs), could maintain civilized peace.15

Conant also marveled at the dynamism of the militarized Russian economy.16 He compared Russian absolutism and American democracy—and found the latter lacking. The recently installed finance minister, Sergei Witte, was connecting the continental empire with railroads, subsidizing the manufacturing sector, rejuvenating Russian finances with a new central bank. While America was fighting a bloody civil war to free its slaves, the czar had unbound Russia’s serfs with a single ukase. Similarly, while in the US the debate about returning to the gold standard continued in the late 1890s thanks to the Populists, the narodniki were never consulted and the deed was done. The obvious conclusion, according to Conant, was that America needed more militarism, hierarchy, command and control in its political economy, or it would lose to Russia in the coming “struggle for existence” in “the orient”—the inevitable upshot of global over-accumulation.

Conant completed The United States in the Orient just a month after the Spanish-American War put the US in nominal possession of Puerto Rico and the Philippines. The new colonies would need new currencies, and the War Department hired Conant as the only plausible candidate to carry out the necessary reforms.17

The Gold Exchange Standard in the colonies

US imperial expansion made it imperative to understand colonial currency. Conant’s first two editions of the History only covered the central financial institutions of the core capitalist nations, so after the US victory over Spain, the Bureau of Insular Affairs (BIA) commissioned Cornell economist Jeremiah Jenks via the American Economic Association to fill this gap in the literature. The result was Essays in Colonial Finance.18 His graduate student Edwin Kemmerer covered the English system in Egypt.19 BIA then hired Jenks to write the “Report on Certain Economic Questions in the English and Dutch Colonies in the Orient” on topics that ranged from labor relations to taxation to police, which served as a handbook for American colonial administrators in the opening decades of the twentieth century.

Jenks analyzed how the GES came to the periphery of the world system. Most poor nations (and every colony) in the last half of the nineteenth century were on either a silver or bimetallic standard. As silver mines enlarged the quantity of silver and gold production stalled, inflation and exchange-rate volatility led most core countries to flee to the gold standard, strengthening gold’s network effects and further inflating the quantity of silver. By the turn of the century, imperial powers were faced with the problem of what to do about their colonies’ increasingly inflationary and unstable silver currencies. Jenks canvased two options. France pioneered the less sophisticated solution, as its colonies were the least market oriented. With fewer pre-existing currencies to worry about, it could directly impose the gold franc. By contrast, England governed more advanced silver-standard colonies, which had long-standing monetary customs and traditions of their own. Given its size and relatively internationalized economy, India was the first to break on the rock of the turbulent and inflationary silver standard. Over the course of the 1890s, English administrators moved India onto a GES.20 India’s silver coins still circulated, but their value was no longer determined by their metallic content; instead, their value rose because the Raj stood ready to trade a fixed quantity of sterling for them in London. By the transitive properties of a functional monetary hierarchy, India’s silver coins became as good as English gold.

By the turn of the century, the largest GES reserves were held by the other side of Eurasia, first by Japan (in England) and second by Russia (in France).21 The choice of reserve currency was constrained by the fact that only England, France, and Germany had the economic prerequisites: sufficient economic girth, robust asset markets, and oversight from a central bank. No one considered putting GES funds into the Moldovian stock market. Nor, for that matter, into Wall Street. If the point of the GES was that it simulated gold standard stability on the cheap, and paid interest on reserves, there was no question of trusting GES funds to minor or incompetent financial systems.

The choice of location for foreign reserve holdings was further overdetermined by military alliances. What better way for Russia to demonstrate to France that it was committed to containing an expansionist Germany than for it to hold a significant amount of government money in Paris? Similarly, Japanese imperial expansion onto the mainland brought it into direct confrontation with the other colonial powers, first with Russia, then with Germany—hence the logical choice of London for its own GES funds. Productive might, effective monetary authorities, and great power politics were the global monetary system’s principal determinants.

Further bolstering London’s command over global finance after the Indian GES was a Japanese innovation: layering GES’s. After conquering Taiwan in 1895, the imperial Japanese government imposed the Taiwanese yen on the island, the GES funds for which were held in Tokyo. Similar attempts to expand the yen zone were made in Korea and northern China at the same moment, but Sergei Witte’s Russia rallied Germany and France, and pushed Japan out of the Liaodong peninsula.22 Military rivalry went hand in hand with competition over one’s place in the international monetary hierarchy. Hence there were multiple “tiers” to the international payments system, and the same gold in one London vault served as backing multiple times over for currencies all across Eurasia. As gold exchange standards multiplied by the early twentieth century, even though economies were connected to each other via mutual commitments to gold, exchange was not seamless. Instead, a ramified patchwork of currency blocs was extended by and across empires.

Using their newly acquired knowledge of GES’s, Jenks and Kemmerer were hired by the Bureau of Insular Affairs and sent to the Philippines to aid in monetary reform, as some of the only experts in the country after Conant. Their task was to help modernize America’s new colonies in line with those of other great powers.

US imperial monetary expansion

In the first decade of the twentieth century, the US expanded its monetary sovereignty to encompass strategic areas in the Caribbean and Pacific. Whether through formal colonialism, dollar diplomacy, or branch banking in underdeveloped financial systems, Jenks and Kemmerer exported modern money management techniques throughout much of the Pacific and Caribbean—but not within the US itself, where Jackson’s defeat of the Second Bank still cast a long shadow.

The process of imperial monetary expansion in the Caribbean basin began with the Spanish-American War. Puerto Rico’s proximity tempted US policy makers to follow the French route of directly imposing the metropolitan currency.23 Dollarization was supported by local landlords and capitalists, who sought to gain from greater exchange-rate stability, and schemed to use the redenomination to trick workers into lower wages and higher prices.24 Kemmerer noted the irrational attachments to the joys of symbolic domination, recalling one Congressmen’s conviction that the dollar would “teach [colonial subjects] the lessons of the flag and impress upon [them] the power and glory of the Republic.”25 The materialization of colonialism, in the form of hard coins, provoked a very different reaction, however. Popular protests and strikes led policy makers to reconsider their strategy, and contingency plans were drawn up to proceed without dollarization. Yet this was ultimately unnecessary, as after a few weeks, some of the strikes were settled with wage increases; the riots died down and the reform went through.

Although the Puerto Rican masses weren’t able to alter imperial plans for their own island, the experience made the dangers of the French strategy more vivid to colonial reformers, who changed tack in response. At the time, the monetary reform group in the Philippines was still in the process of winning a second guerrilla war against insurgents; fear of reprisals as in Puerto Rico convinced the money doctors that the more covert English GES alternative would be a safer route going forward. The next nation to be dollarized was specifically created for US interests. In 1903, Panama was carved out of Colombia to build the Canal, and promptly put on a GES with funds held in New York.26

The monetary modernization process was most straightforward in the Philippines. As Conant held meetings with local bankers, he was keenly aware of England’s pioneering transformations taking place around the Indian Ocean and East China Sea. Commenting a decade later, Keynes teased that Conant’s reforms in the Philippines “imitated, almost slavishly, India.”27 In 1903, Congress passed the Philippine Coinage Act, charging the colonial government with working out a plan for an official GES. Conant, together with Jenks, produced the text which that year became the Philippine Gold Standard Act. The GES architecture up and running, Conant left the island, and was immediately replaced by Kemmerer, who became Chief of the Division of the Currency. Kemmerer explicitly modeled his activities on foreign examples, describing his task as “the establishment of a gold standard with a theoretical gold peso,” very much “like the theoretical gold yen of Japan.”28

In effect, Kemmerer became America’s first central banker, managing reserves while buying and selling gold in New York to maintain the value of its colonial currency. While it did not resemble a “banker’s bank,” Kemmerer’s role was functionally equivalent to the national banks of Belgium, Japan, or Austria-Hungary, which dealt either principally or exclusively with managing foreign exchange markets and not with lender of last resort functions. The success of these experiments in the colonies began a process of expansion for the institutions of monetary management within America’s near abroad, which ultimately rippled all the way back to the homeland.

Dollar diplomacy blocked

Despite a few promising prospects for luring countries onto a dollar-based GES, it was not to be. While the US managed to implement GES in the new colonies of Puerto Rico and the Philippines, its growing military presence in the rest of the Americas struggled to translate into monetary power. The dollar’s reputation for instability still plagued the US’s ability to project power abroad.

The first failure occurred in Mexico, which had been looking to reform its currency. Although Mexico was a serial defaulter, their banker had been willing to offer a £3 million rescue loan to the Porfiriato when the price of silver—Mexico’s main export and a peg for its bimetallic currency—crashed in the early 1890s, pushing the dictatorship to the brink of default.29 As part of a strategy to rebuild the nation’s fiscal capacity, Finance minister José Yves Limantour negotiated with several banking houses simultaneously, never adopting a single “patron bank” like other Latin American countries at the time. In 1899 he played Berlin, Paris, and London banks off against his best offer, that of J.P. Morgan, in a bid to refinance Mexican debt. Ultimately the campaign ended in a syndicated loan from all four cities, on terms better than contemporaries and later econometricians thought possible on the open market, but worse than Morgan’s original pitch. A nationalist concern about the growing power of North American companies in Mexican infrastructure was no doubt at work. But in a letter from President Díaz to Limantour, he adds an additional dimension: “Your Excellency has done very well in refusing the volatile [New York] banks.”30 New York money markets were simply too risky to depend on; better to distribute financial eggs across many baskets.

In 1904, Limantour lured Conant and friends to Mexico on the premise of setting up a GES fund in New York.31 After again pressing for syndication with European houses, Limantour was surprised that the leading Parisian bank he was working with, Edward Noetzlin, balked at the idea.32 When asked about US inclusion on the loan to diversify risk, he replied that a “reduction in expenses would perhaps be possible,” but not the inclusion of New York, whose market was “not trustworthy” and “full of juvenile spirits.”33 However, in the end, two loans—one European, the other American—were issued. Rather than set up a GES fund in New York, Mexico’s own Exchange and Currency Commission administered the funds, buying and selling claims on gold in London to manage the peso in the foreign exchange market.34 While American banks could lend, they were not sufficiently stable to make a good GES peg.

Meanwhile, Roosevelt’s reaction to events in Venezuela pushed US monetary imperialism into a new phase. In the 1890s, Venezuela’s civil war meant forced loans and significant property damage for its European residents. When taken to the Hague, the Venezuelan state refused to pay. This prompted an Anglo-German naval blockade and threats of invasion, which in turn provoked Roosevelt’s “Corollary” to the Monroe doctrine: to prevent European intervention in Latin America, the US would enforce claims it deemed legitimate on the Old World’s behalf.35 As Conant put it, “the United States must interest herself in the maintenance of order and security for life and property, unless she wishes one or more of the leading powers of Europe to intervene.”36 To him that meant dollar diplomacy and a GES.

The first test of the Corollary arrived when the Dominican Republic defaulted on German debts in 1904. Roosevelt dispatched the army to take over the fiscal apparatus of the Dominican state. For over a decade thereafter, the State department sent delegates south to staff Dominican customs houses, collect revenue, and assure creditors of timely repayment. The State department hired Conant to organize a private loan from Wall Street to pay off the German creditors. The new US creditors promised to be more patient, since they were getting more than pecuniary reward out of the deal—they were obtaining control over the sovereignty of another nation, and security for the homeland. To facilitate loan repayment and to encourage future borrowing from America instead of Europe, the State department also pressured the government into a GES, with the new Dominican peso equal to one US dollar. The GES funds held in New York at the Morton Trust Company (which kept Conant on retainer) were intended to provide collateral for any new borrowing.37 Ultimately no domestic currency was minted, and only the US dollar circulated for the next thirty years.38 The first test case was a failure.

A similar process took place in Honduras at the end of the decade. The government wanted a formal treaty with the US to establish its GES and a customs receivership. But by 1911, the US Congress was skeptical of the “money trust” and anything that smelt of Wall Street. Delays in US government support for the plan led the Wall Street bankers, whose loans were to finance the GES fund, to fall out. Without a trustworthy GES currency of their own, Hondurans resorted to using dollars, which became the circulating currency.39 The same pattern of attempted GES, Wall Street impatience, and Congressional foot dragging led to a similar deal with Nicaragua falling through in the same year.40 Conant’s old complaint that, unlike Russia, the US system was not streamlined for executive action to extend its monetary sovereignty, seemed more and more biting.

On the spectrum between full colonial apparatus (Philippines, Puerto Rico) and sovereign dollar-denominated GES funds (Panama, Honduras, Nicaragua), Cuba lay somewhere in the middle. After the Spanish-American War, Samuel Jarvis—a frontier businessman nearly sued out of existence in the West—rushed to Cuba to set up a branch of his North American Trust Company. He found no competitors as local “banks” were mostly money changers and pawn shops. Other American banks had stayed away because the legal status of branching abroad was unclear, while foreign branches were not legally recognized. Jarvis, comfortable in the juridical gray, had the island to himself.

When the US took possession of the country from Spain, North American Trust was designated the colonial government’s fiscal agent. As the only bank on the island dealing in dollars and hence capable of financing trade with the mainland, Jarvis’s profits were substantial. With the transition to self-rule, Jarvis set up the Banco Nacional de Cuba in 1900, which remained the fiscal agent of the neo-colonial regime. Legally, the BNC was no longer the branch of a US company, but a Cuban bank proper, its stocks largely held by North Americans and Europeans.41 The BNC aroused controversy in 1905, when it suddenly attempted to issue one million Cuban pesos worth of notes. Cuba’s Congress objected that control of the national money supply was a fundamental aspect of sovereignty, which ought to be regulated by the Cuban people. The issue was still unresolved when a controversial election led to re-invasion by US marines. Within a few years, Jarvis sold the company, and its accounts eventually wound up in the hands of National City Bank, under the command of Frank Vanderlip. City continued to function as Cuba’s independent, Wall Street-controlled central bank for the next two decades.

Jarvis moved on to the Dominican Republic, where he set up a new bank after again finding no competition. Conant’s earlier GES scheme had already fallen through, and as the only dollar-dealing bank in the country, Jarvis was once again poised to become a central banker. But the State department intervened in 1912, encouraging City Bank’s bid to offer the Dominican government a second loan and to function as its fiscal agent, which succeeded.42 American hegemony required at least some intra-class discipline, in this case imposed by NYC-DC actors on frontier bankers. Hence by the early 1910s, it was Vanderlip who was rapidly becoming the Caribbean’s private central banker. He received the State department’s blessing and the tacit agreement that legal gray zones would continue to be interpreted as white only on condition of good behavior. But his activities were not regulated or overseen in any official capacity. Neither the State department nor City Bank had any assurances that America’s monetary empire would remain stable.

These successive failures pointed to an institutional gap. The US was already in the process of losing client states to cranks like Jarvis. The Nicaraguan and Honduran deals were tanked by Congressional dithering on foreign loans. Even if the loan offers had gone through, there were prominent voices in Latin American governments who thought that the US was too risky to hold their funds. The absence of any monetary executive in the US meant instability and delay.


By the early 1910s, the situation had changed. New York money markets were more stable and more centralized. There was more institutionalized management and more expertise on international monetary matters than Conant could have hoped for when he first began to educate Americans on the subject in the 1890s. Indeed, by the second decade of the twentieth century, members of America’s international monetary community were beginning to write textbooks on the international monetary reform process.43

Yet on returning to edit the third edition of his History in 1909, Conant noted a glaring omission: America’s periphery possessed rather advanced monetary management mechanisms, which the US itself lacked. The new chapter on the US, titled “The Panic of 1907,” was an embarrassing narrative of stock market crash, banking panic, and recession. The story only ended when J.P. Morgan took the reins and for a moment became America’s lender of last resort, organizing the healthy banking houses into a consortium to bailout their struggling peers. But Morgan would not be around forever. The US was desperately in need of a real central bank.

A decade of failed campaigning for banking reform as a part of the Indianapolis Monetary Convention established Conant as the foremost champion of central banking in America. With the recession of 1907, a tentative national consensus for reform finally emerged.44 The next year, Congress passed the Aldrich-Vreeland Act, creating the National Monetary Commission (NMC) as a sop to growing calls for legislation.45 In just under two years, the Commission produced an exhaustive comparative history of the major monetary systems of the world.46 No less than 15,250 pages in twenty-three volumes, it was an encyclopedic accomplishment which still remains on the cutting edge of early central banking historiography. The NMC kept Conant on retainer, helping write that history and performing public relations work. In a fourteen-part series of front page editorials for The Wall Street Journal, Conant beat the drums for monetary reform week after week.47

If the NMC tended to point to Europe as exemplars of their preferred institutional architecture, others pointed to America’s colonies. Irving Fisher, Yale economist and leading theorist of the quantity theory of money, proposed a global GES with only one country as the pivot for the whole system in his pamphlet The Purchasing Power of Money (a scheme later reincarnated as Bretton Woods). Answering objections to his system, Fisher insisted the technocratic fix would be hardly noticed at all. Pointing to the colonies, he wrote that “the average Philippino or the average inhabitant of India had no real conception” of the GES. Indeed, “No discontent has come from [it].”48

The NMC proposal allowed banks with over $1 million in capital to apply to the new central bank for the privilege of branching abroad—or making any purchase of a bank operating abroad, such as City’s purchase of the BNC. Although the bill provoked fierce opposition, each subsequent counter-Aldrich bill included the same foreign branching clause.

Major opposition to the Aldrich bill came from Democrats. They worried that a state-backed bank of issue that was privately controlled would only serve the interests of Wall Street, harming indebted farmers in the south and west. Kemmerer—by 1912 at Princeton and living only a few minutes walk from one of the president-elect’s houses—launched into action. He pointed out to Wilson that farmers need not fear a central bank, using his research on agricultural banks in Egypt and the Philippines, and his proposals for the mainland as evidence.49 He argued that the large class of farming-oriented loans would benefit from the liquidity of a central banking discount facility, as the English had done in Egypt. Further, the private English model written into the Aldrich plan was not the only one available.

He argued that the large class of farming-oriented loans would benefit from the liquidity of a central banking discount facility, as the English had done in Egypt. Further, the private English model written into the Aldrich plan was not the only one available.50 In the House of Representatives, Henry Parker Willis, an expert on the Latin Monetary Union discussed above, advised congressman Carter Glass. A bill emerged for debate.51 The Fed’s public-private mix ultimately descended from the Belgian model, which Conant considered the “ideal bank of issue.”52 While it wasn’t the banker-dominated, private central bank the NMC preferred, almost any central bank would do for Conant. As he had written for decades, there was a whole world of possible architectures for stabilizing the homeland.

The Act officially passed into law on December 23, 1913. Jumping the gun by a month, Vanderlip had already opened up the first branch of City Bank in Buenos Aires in November. Seven short years later, there would be 181 foreign branches of US banks, forty-eight belonging to City, blanketing Latin America with dollars.53 Conant’s dollar system had arrived.

The dollar bloc today

Like all forgotten origin stories, this one has been written with an eye on the present. From its beginning, the US Fed was about more than domestic stabilization alone. With its roots in inter-imperial rivalry, central banking in the US always had its function within the world-system, where the dollar could act as a security perimeter for American hegemony and a substrate for economic weapons like sanctions.54

Today, countries like the Philippines and Honduras nominally hold political sovereignty, but US soldiers remain, and the history of their unequal integration into the dollar system still weighs heavily on their level of economic development. The US has never quite lived up to the responsibilities it assumed by force as central banker for its periphery. From the recession of 1920 that pulverized commodity prices and started the Great Depression a decade early in the agrarian American economies, to the Latin American debt crisis of the 1980s, to the ongoing Third World debt crisis today, the US has set monetary policy for the nation rather than the dollar system as a whole. These waves of financial catastrophe have consistently set back development in the American periphery.

The contradiction between US national policy and global economic governance has deep historical roots in early twentieth century great power politics. Any reform plan today that seeks to democratize finance or redress the imbalances and hierarchies of the dollar system will have to confront the longstanding interest of the American power elite in using the dollar to pursue US security interests.

  1. Robert L. Hetzel, The Federal Reserve: A New History (Chicago, 2022) is the latest iteration of the functionalist domestic origins story. See Livingston, Origins of the Federal Reserve System: Money, Class, and Corporate Capitalism, 1890–1913 (Cornell, 1986) on corporate bankers; J. Lawrence Broz, The International Origins of the Federal Reserve System (Cornell, 2009) on exporters; and Nadav Orian Peer, “Negotiating the Lender-of-Last-Resort: The 1913 Fed Act as a Debate Over Credit Distribution,” Tulane Public Law Research Paper, No. 18-8, 2018 on farmers.

  2. Emily Rosenberg, Financial Missionaries to the World: The Politics and Culture of Dollar Diplomacy, 1900–1930 (Duke, 1999); Gabriel Kolko, Triumph of Conservatism: A Reinterpretation of American History, 1900-1916 (Free Press, 1977); Martin J. Sklar, The Corporate Reconstruction of American Capitalism, 1890–1916: The Market, the Law, and Politics (Cambridge, 1988).

  3. Melvyn P. Leffler, Elusive Quest: America’s Pursuit of European Stability and French Security, 1919-1933 (UNC, 2009), 89–90; John A. Thompson, A Sense of Power: The Roots of America’s Global Role (Cornell, 2015), 122-3.

  4. Christy Thornton, Revolution in Development: Mexico and the Governance of the Global Economy (University of California Press, 2021) makes a powerful argument for the agency of the global south in creating the mechanisms of global economic governance following Eric Helleiner, Forgotten Foundations of Bretton Woods: International Development and the Making of the Postwar Order (Cornell, 2016). See also Amy Offner, Sorting Out the Mixed Economy: The Rise and Fall of Welfare and Developmental States in the Americas (Princeton, 2019) on the importance of holding domestic US history together with a larger hemispheric history of the Americas in a single analytic frame.

  5. Conant, History, 35. See also John Shovlin, “Jealousy of Credit: John Law’s ‘System’ and the Geopolitics of Financial Revolution,” The Journal of Modern History 88/2 (2016), 275-305 and Trading with the Enemy: Britain, France, and the 18th-Century Quest for a Peaceful World Order (Yale, 2021) which connect early 18th century French monetary governance more directly to great power conflict than Conant’s History. For a longer history of central banking in France, see Vincent Bignon & Marc Flandreau “The Other Way: A Narrative History of the Bank of France,” CEPR Discussion Paper 13138 (2018).

  6. Charles Postel, The Populist Vision (Oxford, 2007), chapter 5. Sklansky, Sovereign of the Market, chapter 5.

  7. The aristocratic and neo-classical aesthetics of Nicholas Biddle, the Second Bank’s brilliant helmsman, did not help. Jeffrey Sklansky Sovereign of the Market, chapter 4. P.G.M. Dickson, The Financial Revolution in England: A Study in the Development of Public Credit, 1688-1756 (Melbourne, 1967); John Brewer, The Sinews of Power: War, Money and the English State, 1688–1783 (Harvard, 1988); Carl Wennerlind, Casualties of Credit: The English Financial Revolution, 1620–1720 (Harvard, 2011). Bagehot, Lombard Street: A Description of the Money Market (1873).

  8. Paul Post, “Central Banks at War,” International Organization (Winter 2015): 63-95 shows that while central banks lower sovereign interest rates, before 1914 they did so only in times of war. See also Niall Ferguson, Martin Kornejew, Paul Schmelzing, Moritz Schularick, “The Safety Net: Central Bank Balance Sheets and Financial Crises, 1587–2020,” Hoover Institution Economics Working Paper 23102.

  9. “The Evolution of Modern Banking,” Political Science Quarterly, 14/4 (1899), 569-93. Eric Helleiner, The Making of National Money (Cornell, 2003). Charles Goodhart, The Evolution of Central Banks (Penguin, 1988).

  10. Henry Parker Willis, A History of the Latin Monetary Union: A Study in International Monetary Action, (University of Chicago Press, 1901). See also Marc Flandreau, The Glitter of Gold: France, Bimetallism, and the Emergence of the International Gold Standard, 1848-1873 (Oxford, 2004).

  11. Conant, The National Bank of Belgium (National Monetary Commission, 1910).

  12. Barry Eichengreen, Arnaud Mehl, and Livia Chiţu, How Global Currencies Work (Princeton, 2018), which still prominently cites Kemmerer and Conant!

  13. Metzler, Lever of Empire. Harold James, “Monetary and Fiscal Unification in Nineteenth-Century Germany: What Can Kohl Learn from Bismarck?,” Princeton Essays in International Economics 202 (1997).

  14. First published in The North American Review, 167/502 (Sep., 1898), 326-40. Carl P. Parrini and Martin J. Sklar, “New Thinking about the Market, 1896-1904: Some American Economists on Investment and the Theory of Surplus Capital,” The Journal of Economic History, 43/3 (1983), 559-78.

  15. Richard Bensel, The political economy of American industrialization, 1877-1900 (Cambridge, 2000); Paul Bairoch, Economics and World History: Myths and Paradoxes (UChicago Press, 1995) ch. 3.

  16. “Russia as World Power,” first published in The North American Review (February 1899).

  17. Emily S. Rosenberg, “Foundations of United States International Financial Power: Gold Standard Diplomacy, 1900-1905,” The Business History Review 59/2 (1985), 169-202.

  18. The text included information on the colonies of France, Germany, Denmark, Holland, and Italy, as well as several chapters on the English dependencies, including the West Indies, South Africa, and “those of the Far East.”

  19. Jenks (ed.), “Report of the Committee on the Colonies,””AER, 1/3 (1900), 2.

  20. In addition to the Jenks volume, another contemporary view is Keynes’ first book, Indian Currency and Finance (1913).

  21. Metzler, Lever of Empire and Eichengreen et al., Global Currencies.

  22. Conant, US in the Orient; Metzler, Lever of Empire, 41-2.

  23. Kemmerer, Modern Currency Reforms: A History and Discussion (Macmillan, 1916).

  24. Rosenberg, Missionaries, 13-14.

  25. Kemmerer, Modern Currency Reforms, 33.

  26. Commission on International Exchange, Report on the Introduction of the Gold-Exchange Standard into China, the Philippines, Panama, and Other Silver Standard Countries, etc. (1904).

  27. Keynes, Indian Currency, 27.

  28. Kemmerer, “The Establishment of the Gold Exchange Standard in the Philippines,” The Quarterly Journal of Economics, 19/4 (1905),585-609, this quote 586.

  29. In the late nineteenth century, the principal underwriter for Mexico’s sovereign debt was Gerson von Bleichröder, personal banker to Bismark and the Prussian state as a satellite of the Rothschild network, who had his own complex diplomatic reasons for pursuing Mexican finance. Leonardo Weller, “Government versus Bankers: Sovereign Debt Negotiations in Porfirian Mexico, 1888–1910,” The Journal of Economic History (2015) 75(4), 1030-1057 and “The Bankers’ Beloved Dictatorship: Mexico, 1890–1910,” in Sovereign Debt Crises and Negotiations in Brazil and Mexico, 1888-1914 (Palgrave Macmillan, 2018). Steven C. Topik, “Controversia crediticia: los “azulitos” del periodo de Maximiliano,” in Leonor Ludlow and Jorge S. Riquer (eds.) Los negocios y las ganancias de la colonia al México moderno, 445–70. (Instituto Mora, 1993) and “When Mexico Had the Blues: A Transatlantic Tale of Bonds, Bankers, and Nationalists, 1862–1910.” The American Historical Review (2000) 105 (3):714–38.

  30. Weller, “The Bankers’ Beloved Dictatorship,” 135.

  31. Rosenberg, Financial Missionaries.

  32. Noetzlin was perhaps the most decorated international banker in the late nineteenth century not named Rothschild. Born in Switzerland, he joined the management of the Banque de Paris before its merger in 1872; became Secretary General of the Banque Franco-Égyptienne in 1875; cofounded the National Bank of Mexico in 1881 and served as its managing director; he was also involved as a managing director of the Russo-Chinese Bank. But in the 1904 Mexican debt negotiations, he was acting as a director of the Banque de Paris et des Pays-Bas (later Paribas), which he would later become president of from 1911 to 1914. Hubert Bonin, Le monde des banquiers français au vingtième siècle (Complex editions, 2000). Thomas Passananti, “Banking on Mexico: Edouard Noetzlin and the Role of Financial Networks in Porfirian Mexico,” conference paper for the 126th Annual Meeting of the American Historical Association.

  33. Weller, “Bankers’ Beloved Dictatorship,” 138.

  34. Romero Sotelo and María Eugenia, “Patrón oro y estabilidad cambiaria en México, 1905–1910,” América Latina en la historia económica: Revista de Investigación (2009) 32:81–109.

  35. Nancy Mitchell, “The Height of the German Challenge: The Venezuela Blockade, 1902–3,” Diplomatic History 20/2 (1996), 185-210, as well as her book, The Danger of Dreams: German and American Imperialism in Latin America (North Carolina, 1999).

  36. Charles A. Conant, “Our Mission in Nicaragua,” The North American Review, Vol. 196, No. 680 (Jul., 1912), pp. 63-71.

  37. The GES funds for the Philippines and Panama were also placed at Morton. When Conant negotiated the Nicaraguan deal, discussed below, he was employed by Brown Brothers, another Wall Street firm.

  38. Robert Triffin, “Central Banking and Monetary Management in Latin America,” in Seymour Harris (ed.) Economic Problems of Latin America (New York, 1944); Triffin, Monetary and Banking Reform in Paraguay (1946), available on FRASER, the Fed’s digitized archive. Rosenberg, Financial Missionaries.

  39. Curiously, it was not financial institutions which injected dollars into Honduras, but US banana companies, whose manorial economies dominated the north. Rosenberg, Missionaries, 65-9, 108-9.

  40. Ibid, 68-9. See also Michel Gobat, “La construcción de un estado neo-colonial: el encuentro nicaragüense con la diplomacia del dólar,” Revista de Ciencias Sociales, núm. 34, mayo, 2009, pp. 53-65 and Confronting the American Dream: Nicaragua Under US Imperial Rule (Duke, 2005) for larger context.

  41.  Hudson, Bankers and Empire, 37.

  42. Ibid., 47.

  43.  Conant, “The Correct Method of Monetary Reform in Latin America,” circulated to Kemmerer as early as 1909; box 243, folder 5, Edwin W. Kemmerer Papers (hereafter EWKP), MC146, Public Policy Papers, Department of Rare Books and Special Collections, Princeton University Library; published by a New York printing house in 1911.

  44. Kolko, Triumph, 147–8; Livingston, Origins, 104–5, 109–10.

  45. Aldrich-Vreeland Act of 1908, May 30, 1908, section 18.

  46. Available in full on FRASER.

  47. Conant, “A Central Bank of Issue,” Wall Street Journal, 22 September 1909, 9 October 1909, 16 October 1909, and 23 October 1909, 1. (Each article in the series begins on the front page.), cited in Sklansky, Sovereign, 232.

  48. “Objections to a Compensated Dollar Answered,” American Economic Review 1914, 4/4, pp. 818-839. Fisher frequently invoked the colonial GES systems as inspiration, see also “The High Cost of Living” address before The Manufacturer’s Association at Brooklyn, 18 Nov 1912 and “A stable monetary yardstick: the remedy for the rising cost of living,” EWKP, box 12, folder 1.

  49. See his Report On the Agricultural Bank of Egypt To the Secretary of War and To the Philippine Commission (1906) and the report he produced for the NMC Seasonal Variations In The Relative Demand For Money And Capital In The United States: A Statistical Study (1910).

  50. Kemmerer, “Banking Reform in the United States.”

  51. Willis’ later career is also significant in this story. After serving as the first president of the Philippine National Bank, he became a professor at Columbia, where his most important student was Charles Kindleberger, on whom see the groundbreaking Perry Mehrling, Money and Empire: Charles P. Kindleberger and the Dollar System (Cambridge, 2022). For more on literalizing the titular empire, see Herman Mark Schwartz, “Money as Empire?Phenomenal World Feb 23, 2023.

  52. Conant, The National Bank of Belgium.

  53. Faramarz Damanpour, The Evolution of Foreign Banking Institutions in the United States (New York: Quorum Books, 1990), 12–13; Clyde William Phelps, The Foreign Expansion of American Banks: American Branch Banking Abroad (New York: Ronald Press, 1927), 85; Robert Mayer, “The Origins of the American Banking Empire in Latin America,” Journal of Inter-American Studies and World Affairs 15 (February 1973): 61–2.

  54.  Nicholas Mulder, The Economic Weapon: The Rise of Sanctions as a Tool of Modern War (Yale, 2022). Barry Eichengreen, Arnaud J. Mehl, and Livia Chitu, “Mars or Mercury? The Geopolitics of International Currency Choice,” NBER Working Paper No. 24145 (December 2017).

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