Working Paper in Economic and Social History
nº.1 February 2017

Luciano Amaral

A Monetary Plethora and what to do with it: the Bank of Portugal during World War II and the Post-War Period (1939-1960)

Nova School of Business and Economics
Lisbon, Portugal

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Up to World War II the Bank of Portugal (BoP) was far from possessing the features normally associated with a central bank. It was still a commercial bank, although one that had acquired some central bank functions. The World War II period was decisive to change this ambiguity. The change was mostly caused by an unusually large influx of international means of payment (gold and foreign exchange) as a consequence of Portuguese neutrality during the war, which allowed the BoP to transform its balance sheet structure: the BoP became the institution centralising commercial banks’ reserves. However, all of this happened during a very disturbing period for the BoP. The BoP had been reformed to function as the manager of the escudo in the gold‐exchange standard. But just a few months after the reform, the goldexchange standard collapsed. The BoP adapted quickly to the new environment of discretion, Government interference, and nationalism. It did it so, however, in a relatively original way: it followed the trend but kept at the same time certain features of a central bank still committed to gold standard principles. This was visible during both the World War II and Post‐War periods.