In Search of Lost Time : Foreign Exchange Reserve Management in Portugal between the Wars

In the interwar period central banks accumulated foreign exchange as part of the gold exchange standard recommendations. The problems of credibility of the system, and its later demise, created the need for an active reserve management policy by banks. In this paper we study the repercussion of these international developments in the reserve policy of the Portuguese central bank. Empirical evidence shows that the composition of the reserve by currencies was mainly adjusted to the needs of foreign trade and reflected the choice of peg. The return on the Bank's portfolio was a minor consideration