Realignment expectations and the US dollar, 1890-1897: Was there a 'Peso problem'?

We investigate dollar-sterling exchange rate expectations during the period 1890-1908. We show that the dollar faced a 'Peso problem' in that for much of the period financial markets expected it to depreciate against sterling , but this never in fact happened - i.e. expectations were persistently bia sed. Drawing on the economic history of the period we identify 11 'events' which probably gave rise to realignment expectations. Once the dollar's adh erence to the gold standard was settled as a political matter in the 1896 P residential Election expectations of dollar realignment abruptly subsided a nd United States interest rates fell relative to British rates. (C) 2000 El sevier Science B.V. All rights reserved. JEL classification: C53; E58; F31; F33.