MONETARY UNIONS

The European nineteenth century was a century of nation building and of the gradual Europeanization of the international economy. Both were conducive to a very rapid growth in international trade. At the same time, monetary policies became central to economic policies. The century saw the creation of national central banks, charged with managing monetary policy and supervising private banks. In a major debate among economists, the "banking school," which favored the convertibility of notes in gold to avoid inflation, won out over the "currency school," which supported free banking. European countries searched for monetary stability in a context of "laissez-faire," and a general acceptance of gold and silver standards amid strong political pressures toward free trade (leading, for example, to the Cobden-Chevalier Treaty of 1860, essentially establishing free trade between France and Great Britain). New nation-states—Belgium, Germany, Greece, and Italy—had to build or adjust their economic structures and institutions to the concert of nations.

major implemented unions

Within this general framework, ideas for a worldwide monetary system were developed. Several continental European states decided to link their currencies. Their goals were to improve economic stability, bring about a larger fluidity of trade, and protect themselves against pressures on their economies from the growth of international trade and from British economic and colonial domination. They also sought solutions to the economic disequilibria created by the unstable supply of gold and silver. Two of the monetary unions were linked to the unification of Italy (1860–1870) and Germany (1871–1873). Two others were international monetary unions: the Latin Monetary Union (1865) and the Scandinavian Monetary Union (1872).

After the Congress of Vienna in 1815, both Italy and Germany consisted of many sovereign states using different currencies and monetary systems. In 1865, seventeen different systems for gold coins and sixty-six for silver existed in the German states, and on the Italian peninsula until 1860, twenty-two gold and forty silver systems were in use. In both the German and Italian states, a process of political, economic, and monetary unification began in the 1820s. The German states finalized a monetary unification through a customs union (the Zollverein, 1834), a monetary association of the southern states (the Munzverein, 1837), and a monetary agreement between northern and southern states (the Dresden Convention, 1838). The 1866 Austro-Prussian War accelerated political and monetary unification. The mark was created on 4 December 1871, almost a year after the formal unification of Germany. In Italy the Kingdom of Sardinia adopted the French monetary system in 1820, calling their monetary unit the lira, instead of the franc. Upon unification (1860–1870), this system was extended to all parts of the Kingdom of Italy.

France, Belgium, Italy, and Switzerland formed the Latin Monetary Union (LMU) in 1865, joined by Greece in 1868. Each had previously adopted the French monetary system (including decimalization), but not the uniformity of coin weights and metallic fineness. This had led to erratic inflows and outflows of species. On 23 December 1865, in Paris, the parties signed a convention for fifteen years. Spain, Austria-Hungary, Serbia, Romania, Bulgaria, Russia, and even Chile adopted the French monetary system, although they were not included in the formal LMU agreement. The convention was renewed in 1878–1879, and survived despite the gold-silver crisis, the lack of coordination of monetary policies, and the refusal of France to abandon its bimetallistic system. The convention formally ended in 1927.

The Scandinavian Monetary Union (SMU) had similar origins and provisions. It was created by Sweden and Denmark (via the Copenhagen Convention, 18 December 1872). Norway joined in 1875. Coins with identical weights and fineness were introduced and became legal tender throughout the union. The SMU worked smoothly up to the secession of Norway in 1905. It did not survive World War I.

international monetary conferences and projects for a worldwide currency

At the same time, on the initiative of French Emperor Napoleon III, and with the backing of the United States, international conferences took place in Paris (1867, 1878, 1881, and 1892) with the goal of considering the possibility of a uniform world gold coinage and the adoption of the French decimal system worldwide. Discussions brought the boldest proposals ever made for a worldwide monetary union. Great Britain, however, refused to adapt its monetary system, or to accept the bimetallistic system and the decimalization of its currency. Moreover, France refused to abandon the silver system and bimetallism (the latter being a monetary system based simultaneously on gold and silver value, with, in this case, a fixed ratio between them of one to fifteen). The discovery of large silver mines in America brought about the loosening of the U.S. position, isolating France.

Two important proposals discussed during these conferences would have to wait nearly a century to be put into practice. Julius Wolf, a German economist, supported by the French representatives Jacques Chevalier and Joseph Garnier, suggested creating in a neutral country a "Universal Bank," where international gold reserves would be deposited to back the issue of international bank-notes. This would occur in 1944 with the creation of the International Monetary Fund (IMF), although in a partial form, because the IMF never issued international notes or money with legal tender. Furthermore, in 1867 the French negotiator Esquiriou de Parieu proposed the creation of a European federation of states called the "European Union" that would be governed by a European Commission composed of representatives of the member states and a European Parliament. Its goal would be to impede European wars; to create a common currency, a common market, and Continent-wide postal and transport systems; and to provide a structure for common international negotiations. Such a process began with the creation of the European Coal and Steel Community in 1951 and the European Monetary Institute in 1992, and with the signing of the European Union Constitutional Treaty, scheduled for ratification votes by 2006.

See alsoBanks and Banking; Cobden-Chevalier Treaty.

bibliography

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Thierry L. Vissol