Union Uniforms

I. The history of monetary unions

"Before long, all Europe, except England, has a price." This was written by William Bagehot, the editor of The Economist, the renowned British magazine, 120 years ago when Great Britain, even then, was heatedly discussed the desirability of adopting a single European currency or not.

A century later, the euro is finally here (though without British participation). Having braved numerous doomsayers and Cassandras, the currency - though much depreciated against the dollar and reviled in some circles (especially in Great Britain) - is now used in both the eurozone and in the Eastern and Southern Europe (the Balkans). In most countries in transition, it has already replaced its much sought predecessor, the Deutschmark. The euro still feels like a novelty - but it is not. It was preceded by quite a few Monetary Unions in Europe and outside it.

What lessons history teaches us? What should we avoid the pitfalls and what elements should be adopted?

People felt the need to create a uniform medium of exchange as early as in ancient Greece and medieval Europe. Those proto-unions have a central monetary authority or monetary policy, but they worked surprisingly well in the uncomplicated economies of the time.

The first truly modern example would be the monetary union of the colonial New England.

The four types of paper currency printed by the New England (Connecticut, Massachusetts Bay, New Hampshire and Rhode Island) were legal tender in all four until 1750. The governments of the settlements, has accepted for tax payments. Massachusetts - by far the dominant economy of the quartet - sustained this arrangement for almost a century. The other colonies became so envious that they began to print additional notes outside the Union. Massachusetts - facing a threat of devaluation and inflation - redeemed for silver its share of paper currency in 1751. He then retired from the Union, has established its own standard silver (mono-metallic), currency and never looked back.

A far more important was the Latin Monetary Union (LMU). It was designed by the French, obsessed, as usual, by their declining geopolitical fortunes and monetary prowess. Belgium already adopted the French franc when it became independent in 1830. The EA is a natural extension of this franc zone and, as the two teamed up with Switzerland in 1848, they encouraged others to join. Italy followed suit in 1861. When Greece and Bulgaria acceded in 1867, members have created a monetary union based on a bimetallic (gold and silver) standard.

The LMU was considered sufficiently serious to be able to flirt with Austria and Spain at its Foundation Treaty was officially signed in Paris in 1865. This despite the fact that its French-inspired rules seemed often to sacrifice the economy to political expediency, or grandiose.

The EA is a subset of a CFA official "unofficial" (monetary union based on the French franc). This is similar to using the U.S. dollar or the euro in many countries today. At its peak, eighteen countries adopted the gold franc as legal tender (or PEG). Four of them (the founding members of the LMU: France, Belgium, Italy and Switzerland) agreed to a gold medal at the conversion rate minted gold and silver and silver coins legal tender in each. They voluntarily limited their money supply by adopting a rule that forbids them to print documents of more than 6 francs per capita.

Europe (particularly Germany and the United Kingdom) was gradually shifted to the time of the gold standard. But members of the Latin Monetary Union paid no attention to its emergence. They printed pieces ever greater quantity of gold and silver, which was legal tender throughout the Union. Small cuts (toke.