Between the late eighteenth and early nineteenth century a new coinage appeared in Europe and the circumstances seemed to bring to pass, at least in a part of the Continent, the ancient dream of the single currency�
In 1795, in France, the revolutionary government shocked the currency system: no longer the traditional triad pound-shilling-penny4, created by Charlemagne, but a new currency, the franc, based on the decimal system5� It was a bimetallic monetary system, in which the gold
3 Recent studies dealing with comparison among different monetary unions in history underline that the need for effective oversight of banking and financial systems at the level of the monetary unions is not enough because it is very important to analyse political economy considerations and political integration as well� Cf� Bordo, Michael D�, Jonung, Lars, The Future of EMU: What Does the History of Monetary Unions Tell Us?, NBER Working Paper No� 7365, September 1999, available on http://www�nber�org/papers/w7365�pdf (15 September 2016); Eichengreen, Barry,
“European Monetary Integration with Benefit of Hindsight”, in Journal of Common Market Studies, Vol� 50, No� 1, March 2012, p� 123-136; James, Harold, Making the European Monetary Union, Cambridge, Harvard University Press, 2012; Lastra, Rosa M�, Loui, Jean-Victor, “European Economic and Monetary Union: History, Trends, and Prospects”, in Yearbook of European Law, March 2013, p� 1-150;
O’Rourke, Kevin H�, Taylor, Alan M�, “Cross of Euros”, in Journal of Economic Perspectives, Vol� 27, No� 3, Summer 2013, p� 167-192; Tache, Ileana, “Historical Record of Monetary Unions: Lessons for the European Economic and Monetary Union”, in Bulletin of the Transilvania University of Brasov, Vol� 6, No� 2, 2013, p� 161-170; Fendel, Ralf, Maurer, David, “Does European History Repeat Itself?
Lessons from the Latin Monetary Union for the European Monetary Union”, in Journal of Economic Integration, Vol� 30, No� 1, March 2015, p� 93-120; Ryan, John, Forgotten Lessons for the Eurozone, Brussels, Egmont Royal Institute for International Relations, 2016�
4 In 779, Charlemagne established a new standard, the livre carolinienne (from the Latin libra, the modern pound), which was based upon a pound of silver – a unit of both money and weight – which was worth 20 sous (from the Latin solidus, which was primarily an accounting device and never actually minted, the modern shilling) or 240 deniers (from the Latin denarius, the modern penny)� The livre and the sou were counting units; only the denier was a coin of the realm�
5 The decimal system, introduced in France in 1793 following the French Revolution, replaced the duodecimal system monometallic created by Charlemagne� The effective use of the decimal system took place in 1803, with the issuance of the
currencies and the silver ones could be minted freely and had an unlimited liberating power� Between the monetary values of the two metals there was a legal and fixed ratio6�
The currency followed Napoleon in his conquests� The franc became the coinage of the Empire departments and the vassal States adopted a similar currency system�
The fall of the Empire partially compromised this monetary unification, because the franc continued to be used in many continental regions and some European countries adopted monetary rules that were inspired to the French system7: a little later, Piedmont adhered to the bimetallic system as Belgium (1832) and Switzerland (1850) did� So, in the mid-nineteenth century, four contiguous European States were to have a monetary model essentially based on the same guidelines, characterized by having welcomed with equal dignity monetary gold and silver in a fixed ratio of 1 to 15,58�
The bimetallism adopted by these countries worked until the mid-nineteenth century, when it was challenged by appreciable fluctuations in the market prices of the two metals9�
To address this emergency, Belgium proposed to France, Italy and Switzerland to jointly solve the problem� However, it was the initiative of Napoleon III to break the deadlock� On 20 November 1865 he summoned in Paris a monetary conference, which resulted in the Paris Convention of 23 December: the Latin Monetary Union10 was born, so named by the
franc by Napoleon Bonaparte who, as a result of his military campaigns, spread it throughout continental Europe�
6 Cf� Niveau, Maurice, Storia dei fatti economici contemporanei, Milan, Mursia, 1972, p� 224; Lesourd, Jean Alain, Storia economica dell’Ottocento e del Novecento, Milan, ISEDI, 1973, p� 30� See also Vilar, Pierre, Oro e moneta nella storia. 1450-1920, Bari, Laterza, 1971�
7 On the topic see, among the others: Marconcini, Federico, Vicende dell’oro e dell’argento dalle premesse storiche alla liquidazione della Unione monetaria latina, 1803-1925, Milan, Vita e Pensiero, 1929; Olszak, Norbert, Histoire des unions monétaires, Paris, Presses universitaires de France, 1996�
8 See Marconcini, op. cit., p� 19-20�
9 On the monetary questions of this period please see, in particolar, Felloni, Giuseppe (ed�), Moneta, credito e banche in Europa: un millennio di storia, Genoa, Brigati, 1997�
10 Cf� de Cecco, Marcello, Moneta e Impero. Il sistema finanziario internazionale dal 1890 al 1914, Turin, Einaudi, 1979, p� 63-64� The text of the Convention is published in Marconcini, op. cit., p� 338-341� On the birth and history of the Latin Monetary Union please see, among others: Parker Willis, Henry, A History of the Latin Monetary Union. A Study of International Monetary Action, Chicago, The University of Chicago Press, 1901; Flandreau, Marc, “The Economics and Politics of Monetary Unions: A Reassessment of the Latin Monetary Union, 1865-71”, in Financial History Review, Vol� 7, No� 1, April 2000, p� 25-44;
de Cecco, Marcello, “The Latin Monetary Union Revisited Once Again”, in From the
British press to emphasize the South-European nature of this association even if it was open to any other State that would accepted the obligations11�
Although the Conference had proposed a very ambitious program, which aimed to introduce a European monetary circulation, the results were much more limited and confined to the solution of purely technical problems12�
First of all, the four countries undertook the reduction of the title of silver coins, in order to make the real value of the currencies lower than the nominal one�
Secondly, they fixed the technical data relating to issues, in order to establish a complete list of authorized denominations with dimensions, intrinsic value and tolerances� The coins minted by the four States had such weight, fineness and common diameter, providing differences only in the inscriptions and effigies depending on the national mints13: in this way the coins could circulate freely and be accepted in the public purse of each country at an exchange rate of 1:1�
Finally, the free coinage of silver coins and the unlimited liberating power of silver coins among private citizens, which was reduced to 50 francs, were suspended� However, these measures did not imply the abandonment of bimetallism, because they did not apply to silver coins of 5 francs, which circulated freely in all the countries of the Latin Monetary Union14�
In 1867, during the French Universal Exposition, Napoleon III invited all European countries to Paris for a new monetary conference�
The letter of invitation transmitted by the French government enclosed a copy of the LMU treaty, and suggested the holding of an international
Athenian Tetradrachm to the Euro, cit�, p� 59-75, Bae, Kee-Hong, Bailey, Warren, “The Latin Monetary Union: Some Evidence on Europe’s Failed Common Currency”, in Review of Development Finance, Vol� 1, No� 2, April-June 2011, p� 131-149�
11 Cf� Fauri, Francesca, L’integrazione prematura. Le relazioni economiche europee dalla metà dell’Ottocento alla Grande Guerra, Forlì, Clueb, 2005, p� 23�
12 Cf� Olszak, op. cit., p� 38-39�
13 Ibidem�
14 In May 1866, Italy introduced the fiat, that is the inconvertibility of banknotes in metal currency, thus causing a de facto a devaluation of the Italian lira� As a member of the newly formed Latin Monetary Union, Italy tried to improve its financial situation coining silver coins, exporting mainly to France and asking the central bank to change the gold coin to the agreed rate� Italy obtained huge profits from such arbitrage transactions: the LMU countries were inundated with Italian silver coins so to induce them, in the following years come, to put limits to emissions of silver coins in order to curb the exports� With the adhesion of the Papal State to the Latin Monetary Union in 1868, France was invaded not only by about 80 million Italian coins, but also 30 million papal coins� Cf� Fauri, op. cit., p� 24-25�
conference “to consider the question of uniformity of coinage and to seek for the basis of ulterior negotiations”15� The conference assembled on 17 June, under the presidency of Marquis Léonel de Moustier, Minister of Foreign Affairs, the following named countries being represented: Austria, Baden, Bavaria, Belgium, Denmark, the United States, France, Great Britain, Greece, Italy, the Netherlands, Portugal, Prussia, Russia, Sweden and Norway, Switzerland, Turkey, and Würtemberg� The opposition of France to monometallism and that of Great Britain to the decimal monetary system prevented to reach an agreement16� The conference voted unanimously against the adoption by the countries represented by the silver standard exclusively, and unanimously, with the exception of the Netherlands, in favor of the single gold standard17� At the final session of the conference it was voted to refer these and other decisions reached to the several States for diplomatic action, and that information of the action of the States should be transmitted to the French Government, which should have power to reassemble the conference� The conference adjourned on 6 July, and was not reassembled18�
Meanwhile, on 26 September 1868, George I of Greece also joined the Latin Monetary Union19�
In the following decade20 two factors put in crisis the system created by the Paris Convention21�
15 Lalor, John J� (ed�), Cyclopædia of Political Science, Political Economy, and the Political History of the United States, Vol� III, Oath – Zollverein, New York, Maynard, Merrill, and Co�, 1899, p� 802� On the 1867 monetary conference see also Graham, Thomas, Levi, Leone, Report of the International Conference on Weights, Measures, and Coins:
held in Paris, June 1867, London, Printed by Harrison and Sons, [1868]�
16 Cf� Schor, Armand-Denis, La monnaie unique, Paris, Presses universitaires de France, 1995, p� 15�
17 On the attempts to transform the Latin Monetary Union into a bigger and stronger monetary union please see the deep analysis of Einaudi, Luca, “From the Franc to the ‘Europe’: The Attempted Transformation of the Latin Monetary Union into a European Monetary Union, 1865-1873”, in The Economic History Review, Vol� 53, No� 2, May 2000, p� 284-308�
18 Schor, op. cit., p� 27�
19 In 1868, Spain also adopted a system which was similar to the Latin Monetary Union, although never formally acceding because of the difficulties in ensuring an adequate level of circulating money on function of the precious metal reserves available�
20 For a thorough review of the European monetary unification process of this period, see again Einaudi, Luca, Money and Politics. European Monetary Unification and the International Gold Standard, 1865-1873, Oxford, Oxford University Press, 2001�
21 On the problems affecting the Latin Monetary Union cf� Flandreau, Marc, “On the Inflationary Bias of Common Currencies: The Latin Union Puzzle”, in European Economic Review, Vol� 37, No� 2-3, April 1993, p� 501-506�
At the end of the Franco-Prussian War, in 1871, the war compensation paid in gold from France to Germany led to a surplus of silver, so that the devaluation that followed was beyond redemption� The result was the shift of monetary systems toward convertibility of money exclusively in gold22: in particular Germany, the Netherlands, Scandinavian countries and the United States, having opted for the golden monometallic system, wanted to get rid of their silver reserves23� All of this changed the gold-silver ratio, which, went from 1 to 15�5 to 19 in 1876 and then to 33�3 in 1890�
Moreover, starting from 1873, the silver depreciated because new reserves were discovered in Nevada, while in the Far East and Europe the metal markets narrowed�
The new agreements, which succeeded in the following years (1874, 1875, 1876, 1878 and 1885), first limited the free coinage of 5 francs silver coins and then, in 1878, suspended it� This restrictions in the LMU in 1878 on free coinage and the acceptance of silver as a form of payment, and the discontinuance in Spain in 1883 of the coinage of gold led to the so called “lame bimetallism”24�
The Latin Monetary Union was renewed in 1885 and in 1891 and was later tacitly extended each year, inching closer to a golden monometallic system (gold standard)25� De facto, it ended with the First World War, but its official dissolution was established on 24 December 1925 and entered into force on 1 January 192626�
History showed how the Latin Monetary Union’s attempt to establish rules allowing precise acceptance in one of the members of the currencies of other member countries failed not only under the pressure of international contingencies27, but also because of the absolute lack of
22 Some other good instead of gold would have been used as exchange standards and means of payment, but gold has the advantage of being scarce, relatively indestructible and few industrial uses� Cf� Samuelson, Paul A�, Nordhaus, William D�, Economia, Milan, McGraw Hill, 1996, p� 719�
23 Cf� North, Michael, La storia del denaro: una storia dell’economia e della società europea di oltre mille anni, Casale Monferrato, Piemme, 1998, p� 194�
24 Cf� Schor, op. cit., p� 67; Pecorari, Paolo, La lira debole. L’Italia, l’Unione monetaria latina e il “bimetallismo zoppo”, Padua CEDAM, 1999�
25 The gold standard was formally introduced in the United Kingdom by the Peel Act (1844)� Between 1870 and 1913 it was extended to most of the continental economies, the United States and Japan� Cf� Fauri, op. cit., p� 39-44, 137�
26 The liquidation took place before 1 January 1927� See Droulers, Frederic, Histoire de l’ecu européen du moyen âge à nos jours et des précédentes unions monétaires, s�l�, Aria-Creations, s�d�, p� 68-70�
27 Moreover, it was not taken into consideration the economic imbalance between the members, nor the exchange policy based on a bimetallic system, which lent itself to easy speculations varying the ratio of commercial value and legal value of gold and silver�
common organisms coordinating the economic policies of the various States� For this reason, the weakest members of the Union could well take advantage of the inadequacies of the founding Treaty: the critical financial situation of Italy, Greece and the Holy Siege brought about various forms of excessive monetary creation� The incompleteness of the definitions of money taken by the Union allowed Italy extensive paper money emissions� The declining fortunes of bimetallism and the fall of silver prices then created the unstable financial conditions conducive to international speculation’s insertion in the process and amplify the impact� The economically stronger LMU countries, such as France and Switzerland, became victims of these abuses� They could curb these practices only through a complete control of monetary creation of the new LMU members (Greece) and adopting a more aggressive stance after 1870� This took the form of the expulsion of “free riders”
(for the Holy Siege) and a tightening of LMU rules, imposed by the threat of financial sanctions (against Italy and Belgium)� Of course, this attitude could only preclude any extension of monetary cooperation, and prevented new LMU adhesions, in order to avoid the difficulties of monitoring of too many peripheral countries by the center (France)� All this narrowed gradually the scope of the Latin Monetary Union until its total extinction28�