The Origination and Distribution of Money Market Instruments: Sterling Bills of Exchange during the First Globalization

TL;DR

This paper analyzes the global network of sterling bills of exchange during 1906, highlighting London's central role in transforming private debts into liquid, safe instruments within the early 20th-century financial system.

Contribution

It provides a detailed network analysis of the origination and distribution of bills, revealing London's pivotal role in the first globalization of money markets.

Findings

London's bill market was truly global before WWI

London intermediaries played a crucial role in reducing information asymmetries

The London money market transformed risky debts into liquid instruments

Abstract

This paper presents a detailed analysis of how liquid money market instruments -- sterling bills of exchange -- were produced during the first globalisation. We rely on a unique data set that reports systematic information on all 23,493 bills re-discounted by the Bank of England in the year 1906. Using descriptive statistics and network analysis, we reconstruct the complete network of linkages between agents involved in the origination and distribution of these bills. Our analysis reveals the truly global dimension of the London bill market before the First World War and underscores the crucial role played by London intermediaries (acceptors and discounters) in overcoming information asymmetries between borrowers and lenders on this market. The complex industrial organisation of the London money market ensured that risky private debts could be transformed into extremely liquid and safe monetary instruments traded throughout the global financial system.