What led you to study currencies and central banks?

My academic endeavours have been motivated by my curiosity for money and banking, which probably started as I took my first classes in economics during the Great Financial Crisis. I wanted to understand how central banks could fight financial crisis and stabilise the economy. My decision to become an economist followed a conference I attended during my bachelor on the 2012 euro crisis. The three PhD essays reflect this interest in both financial crises and the functioning of international currencies. They are in International Economics but my approach is one of an economic historian. I use historical arguments and narratives that draw on historical precedents to inform economic policies. 

Can you briefly describe each essay?

The first two essays focus on international currencies during the Bretton Woods era (1944–1973), which constituted a key period for realising a new equilibrium of monetary powers. I seek to provide a new perspective on the main drivers of the monetary evolutions of this era and a better understanding of the decline of sterling.

In Juno Moneta: The Overlooked Dimension of Liquidity in the International Currency Choice in the Bretton Woods Era, I analyse the composition of official gold and foreign exchange reserves of Western European countries. Foreign currencies were not alike when held as reserve currencies. I reveal a robust effect of the development of financial markets on the reserve status of a currency. I also show that central banks’ cooperation via the gold pool had an impact on the currency composition of reserves. 

Zombie International Currency: The Pound Sterling 1945–1971 provides new evidence on the decline of the pound sterling as an international currency. The shift away from sterling occurred earlier than commonly assumed for countries outside the sterling area. I show that the continuation of the postwar reserve role of sterling was possible only because the sterling area was a captive market in which countries were constrained to keep their foreign exchange in pounds sterling. I document the exchange controls, commercial threats and economic sanctions employed by the British authorities against sterling area countries.

My third essay, At Your Service! Liquidity Provision and Risk Management in 19th Century France, co-authored with Vincent Bignon, analyses the Bank of France at the end of the 19th century to reveal how the Bank could provide loans to many different clients without taking risks. At that time, the Bank of France operated a very broad discount window and used specific risk management techniques such as the screening of risk appetite of its clients and the pledging of collateral to mitigate risk arising from the provision of liquidity to a broad and diverse group of clients. This allowed agents to monetise a diverse set of capital. The central bank could thus expand its liquidity facility to help stabilise the economy without suffering losses.

Can you give a topical example on which your historical findings could help shed a new light?

With the development of non-bank payment operators such as Apple Pay, the current world of payment instruments is now returning to the French situation of the late 19th century. At the time, payment instruments were (partly) dis-intermediated from deposit banking, and thus runs could occur on those instruments. Our research shows that the central bank can intervene in such dis-intermediated environment to stabilise the economy. Our case study can inform current policymakers working on the new challenges posed by the digital economy.

How can your research findings serve society?

They can be useful by showing how extraordinary liquidity lines can be provided by central banks without putting these institutions at risk. This is very important for the current situation as the ongoing Covid crisis forced the creation of new liquidity facilities such as the Municipal Liquidity Facility of the Fed. The management and potential development of these facilities as the Covid crisis deepens will be an important research topic for central bankers. 

What are you doing now?

I am starting a postdoctoral fellowship funded by the Swiss National Foundation at Oxford University to continue my work on the history of the decline of sterling. 

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Maylis Avaro defended her PhD thesis in International Economics in October 2020. Professor Rui Pedro Esteves presided the committee, which included Professor Cédric Tille and Professor Marc Flandreau, cosupervisors, and Professor Michael D. Bordo, Department of Economics, Rutgers University, New Jersey, USA.

Full citation of the PhD thesis
Avaro, Maylis. “Essays in Monetary History.” PhD thesis, Graduate Institute of International and Development Studies, Geneva, 2020.
For access, please contact Dr Avaro.

Banner picture: excerpt from an image by Michael Leslie/Shutterstock.com.
Interview by Nathalie Tanner, Research Office.