We all remember the night of December 31, 2001, because at the stroke of midnight, we not only entered another year but also adopted a new currency, the euro, and some rushed to ATMs to see and touch the freshly printed bills from the European Central Bank.
The idea of an international currency unification was not new and had always floated in the air as a possibility to be carried out officially, beyond the practice that involved the use of the Spanish gold doubloon, for example. One of the most curious cases was that of the Latin Monetary Union.
Many people haven’t heard of it, but the truth is that it lasted quite a while—sixty-two years that spanned the 19th and 20th centuries. There were precedents, several in fact, although always in the context of political unions. Examples of this would be the monetary union between England and Scotland in 1707 or that of Italy in 1861, following the country’s unification. The novelty of the Latin Monetary Union lay in its supranational character.
As with the euro, everything began in December, though not on New Year’s Eve but on the 23rd, two days before Christmas in 1865. It was not something that all the countries on the continent adopted, of course, but four of them: France, Belgium, Italy, and Switzerland, which reached an agreement to use the French franc as the common currency. Not just any franc but the gold franc, a prestigious fiduciary unit introduced by Napoleon in 1803, continuing the one created during the French Revolution called the germinal franc (in reference to the month of the revolutionary calendar in which it was born).
The germinal franc, which under Bonaparte came to be decorated with the image of the namesake figure, first as First Consul and then as Emperor, was soon renamed the Napoleon gold coin starting in 1807. It was minted in coins of various values: 5, 10, 20, 40, 50, and 100 francs, although the most common was the 20-franc coin.
The latter measured 21 millimeters in diameter and contained 6.45 grams of fine gold, which in correspondence to silver equaled 1:15.5. The reason the Napoleon was taken as a model was that despite the fall of Bonapartism, it remained in force, given its strength, only changing its design.
The aforementioned countries, which formed the Latin Monetary Union, agreed to mint a bimetallic currency with that same proportion, so one franc had 4.5 grams of silver and 0.29 grams of gold. Obviously, the design was different in each of them, but they matched in value, so they could be used interchangeably in any of them, as happens today with the euro, thus facilitating mutual trade. The agreement came into effect eight months after its signing, on August 1, 1866, and also affected colonial territories, including Algeria.
Initially, it was successful, to the point that on April 10, 1867, after the International Monetary Conference, Greece decided to join. The following year, two more countries requested to join, Spain and Romania.
Regarding Spain, negotiations in that direction dragged on without finalizing, partly due to political disagreements but mostly due to its lack of available silver and difficulties in carrying out a general re-minting due to the economic crisis of 1866. But in the meantime, Spaniards and Romanians tried to adjust their currencies to the bimetallic standard of the International Monetary Union.
They weren’t the only ones, by far, though not all did it fully. For example, by the end of 1867, the Austro-Hungarian Empire, which had not wanted to join because it rejected bimetallism, signed a bilateral agreement with France to accept each other’s gold coins and even agreed to mint its florins of 4 and 8 the same as the 10 and 20 francs.
And then more joined: Peru had already adopted the franc in 1863, but Colombia and Venezuela did so in 1871; Finland (then a duchy) in 1877; Serbia in 1878; Bulgaria in 1880; Montenegro and San Marino in 1889; the Danish West Indies in 1904… Albania, after gaining independence from the Ottoman Empire, did not mint currency in metal or paper but used the Latin Monetary Union coins from neighboring nations (Greece, Austria-Hungary, Italy) until 1925, when it adopted its own monetary system.
Did that initiative have positive results? Yes and no. A recent study (2018) by the European Review of Economic History, an academic economics journal published by the University of Cambridge in collaboration with the European Historical Economics Society, concluded that the Latin Monetary Union did not manage to have significant effects on trade with its new monetary system, as intended, except in the initial period between 1865 and 1874. However, it clearly shook things up a bit, as in 1873 Sweden and Denmark created the Scandinavian Monetary Union (later joined by Norway, although it was actually under Swedish control), with the crown as the common currency; it lasted until 1914.
The Latin Monetary Union lasted a bit longer but was driven by inertia. The origin of the failure dates back to shortly after it began, in 1866, when the administrator of the Vatican Treasury, Cardinal Giacomo Antonelli (who was also Secretary of State), obtained the acquiescence of Napoleon III to start minting in silver without respecting the stipulated proportion. The amount of that metal used was so exaggerated that it equaled the total available in Belgium, quickly degrading the papal currency.
This harmed Swiss and French banks, which refused to accept payments with it. The tense situation was resolved in 1870 with the expulsion of the Papal States from the Union, but by then they had accumulated debts worth 20 million liras. Of course, Antonelli wasn’t the only one to cause disruptions. German merchants imported silver with which they minted coins that they then exchanged for gold ones, destabilizing prices and forcing the Union to adopt the gold standard in 1878.
Other problems kept adding up. For instance, the issuance of paper money based on the bimetallic franc was not limited, forcing all members of the Union to print it to cover expenses. And not all had the capacity to face such expenses; Greece, for example, had such a fragile economy that it was forced to reduce the gold proportion in its coins, devaluing them. This meant breaking the established rules, so the country was expelled in 1908, although it was readmitted two years later.
Fluctuations in the gold and silver markets also didn’t help, given that those were the metals from which the coins were made. In 1865, when the Union was born, silver was already reaching the end of a period of high valuation relative to gold, and in 1873 its value plummeted. To avoid increasing the gold proportion in the francs, the Union members met in Paris on January 30, 1874, and agreed to temporarily limit the free conversion of silver.
But by 1878 the value still hadn’t recovered, and minting in that metal had to be definitively suspended, keeping only the gold standard. Legally, silver coins could still be used for payments, remaining in circulation despite being a nuisance, and in practice, it was normal to pay in gold. This situation lasted for a few decades until the outbreak of World War I dealt the final blow.
To finance the war effort, money had to be minted massively without the need for a gold backing, so the gold standard was suspended throughout the international monetary system (the Bretton Woods Agreements of 1944 replaced it with the U.S. dollar).
After the war, throughout the 1920s, the bimetallic franc was effectively relegated due to inflation shaking those countries: Switzerland, 4%; France and Italy, 17%; Greece, over 27%. It was clear that the currency no longer had its former value and had to be depreciated. It continued to exist, unused, until its formal end in 1927 with the collapse and consequent dissolution of the International Monetary Union.
However, some coins continued to circulate in countries like Venezuela or Switzerland. In the latter, the half, 1, and 2 franc coins continued to be minted to the usual standards (size, weight) until 1967, when cupronickel (an alloy of copper, nickel, and other metals like iron and manganese) was imposed.
It’s also interesting to note that Italy and San Marino still mint gold coins using the Union’s standards, though with value in euros, and Austria does the same with 4 and 8 florin coins for collectors.
This article was first published on our Spanish Edition on November 19, 2018: Unión Monetaria Latina, el primer intento de crear una moneda supranacional, que funcionó hasta después de la Primera Guerra Mundial
Sources
Henry P. Willis, A history of the Latin Monetary Union | Luca Einaudi, Money and Politics: European Monetary Unification and the International Gold Standard (1865-1873) | John F. Chown, A History of Monetary Unions | Marc Flandreau, The economics and politics of monetary unions: a reassessment of the Latin Monetary Union, 1865–71 | Rocío Román Collado, La escuela economista española | Sebastián Claro y Yan Carrière-Swallow, Cueste lo que cueste. La batalla por salvar el euro y Europa | Wikipedia
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