By Anne-Marie Rieu-Foucault, Economist, Banque de France, Direction des Entreprises

During the last financial crisis, central banks had to innovate to provide liquidity to the banking system. Much has been written about the unconventional measures implemented, but few studies have attempted to put the need for these measures into perspective with the financial crises of the second half of the 19th century in the United States. Yet this period, from 1850 to 1913, was highly instructive in terms of monetary and financial problems linked to liquidity allocations, since it led to the creation of the Federal Reserve System (FED). Some liquidity problems were solved by the creation of the FED, but others persisted right up to the 2007-2009 crisis and remain unresolved. This post discusses these points, taking up the analysis developed in the article entitled "What impact on the creation of the FED of liquidity problems in the United States from 1850 to 1913", recently published in the Revue d'Économie Politique.

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