In this chapter we survey the history of international finance spanning a century and a half. We start by characterizing capital flows in the long run, organizing our discussion around six facts relating to the volume and volatility of capital flows, measured in both net and gross terms. We then connect up the discussion with exchange rates and monetary policies. The organizing framework for this section is the macroeconomic trilemma. We describe where countries situated themselves relative to the trilemma over time and consider the political economy of their choices. Finally, we study the connections between international finance and economic and financial stability. We present consistent measures of growth and debt crises over the century and a half covered in this chapter and discuss how their incidence is related to those institutional and political circumstances, and, more generally, to the nature of the international monetary and financial regime.

We divide this chapter into four sections. The first section outlines the taxonomy of commodity-based monetary regimes in Europe and their advantages and costs. The second section describes the main international monetary flows in the early modern period and relates them to East-West balance-of-trade adjustments and monetary systems in Asia (1700–1800). In the third section, we turn to the development of the foreign exchange market, which was mostly based on bills of exchange in this period. We explain the expansion of the bills-of-exchange market from the European to the intercontinental network in the mid-nineteenth century. The final section then investigates how nominal exchange rates and relative prices contributed to the global current account adjustments in the near pre-gold standard period (1820s–1870s).