The Making of a Continental Financial System: Lessons for Europe from Early American History

Abstract

Alexander Hamilton was the first US Treasury Secretary from 1789 to 1795. When he started, the federal government was in default. During his tenure, US Treasuries became the ultimate safe asset. He successfully managed expectations, achieved debt service reduction, and stabilized financial panics. He delivered sound public finances and financial stability. In the end, the US possessed a modern financial system able to finance innovation and growth. At a time when Europe is working its way out of the sovereign debt crisis and implementing banking union and financial union, it is worthwhile to search for lessons from early US history.

Key Words:

• Crisis management
• sovereign debt
• financial markets
• United States

Acknowledgements

The views expressed in this article are the sole responsibility of the author and should not be attributed to the International Monetary Fund, its Executive Board, or its management. The article benefited from comments, corrections, and suggestions from Guillermo Calvo, Zsolt Darvas, Roger Gordon, Stephanie Hare, Heinz Hermann, Russell Kincaid, Sixten Korkman, Harold James, Johannes Lindner, Silvia Luz, Hans-Helmut Kotz, Maria Eugénia Mata, Laura Jaramillo Mayor, Yves Mersch, Ricardo Reis, André Sapir, Richard Sylla, Francisco Torres, Shahin Valée, Max Watson, Thomas Wieser, Guntram Wolff, and Michael Woodford and participants in seminars at Bruegel, Brussels, at St. Anthony’s College, Oxford, at the ECB, Frankfurt, at CFS, Frankfurt, at Columbia University, New York, and at a Conference at Eltville organized by the Bundesbank, the Bank of Japan, the Institute for Monetary and Financial Stability and the University of Hamburg.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1. The fiscal governance framework in the euro area has also become more complex, which gives rise to a number of other challenges (see Eyraud and Wu 2014).