Information

London School Of Economics:
EC-204: Financial Markets and the Global Economy:
The History of Bubbles, Crashes and Inflations

About Me

These destabilizing linkages between domestic and international financial systems operated most powerfully where foreign deposits were most prevalent. Europe's banking systems were interconnected by a network of foreign deposits. (p.19) German banks and companies maintained deposits in Vienna. Austrian banks and companies held deposits in Berlin. By their nature, these balances were the most mobile internationally. Disturbing revelations about the condition of a national banking system might cause foreign depositors to repatriate their funds. The capital account of the balance of payments would weaken and the banking crisis would lead to a convertibility crisis. Equally, disturbing news about the balance of payments could spill over into an attack on the banking system. Anticipating devaluation, foreigners converted their bank deposits into currency and requested the authorities to convert that currency into gold. The simultaneity of banking panics and convertibility crises was systematic, not coincidental.

Experience

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