Cooperate or Free Ride? The Scandinavian Central Banks, Bank for International Settlements and the Austrian Financial Crisis of 1931

In this article, I discuss the role of the three Scandinavian central banks in the establishment of the Bank for International Settlements (BIS) in 1930, and in the international lender of last resort operation towards Austria in 1931. I argue that small central banks were reluctant supporters in the establishment of the BIS and free riders in the Austrian crisis, even though there were marked differences in their attitude to international cooperation. These results run counter to the views of those International Political Economy (IPE) theorists who argue that small states should be in favour of international cooperation. On the other hand, the evidence seems to confirm Kindleberger's hypothesis that small countries were free riding during the international financial crisis of 1931, and that therefore there is a need for some coordinating mechanism, or a hegemon, in such crises.