When did the dollar overtake sterling as the leading international currency? Evidence from the bond markets

We offer new evidence on the emergence of the dollar as the leadin'g international currency focusing on its role as currency of denomination in global bond markets. We show that the dollar overtook sterling much earlier than commonly supposed, as early as in 1929. Financial development appears to have been the main factor helping the dollar to overcome sterling's head start. The finding that a shift from a unipolar to a multipolar international monetary and financial system has happened before suggests that it can happen again. That the shift occurred earlier than commonly believed suggests that the advantages of incumbency are not insurmountable. And that financial deepening was a key determinant of the dollar's emergence points to the challenges facing currencies aspiring to international status. (C) 2013 Elsevier B.V. All rights reserved.