Was the Emergence of the International Gold Standard Expected? Melodramatic Evidence from Indian Government Securities

Graduate Institute of International and Development Studies Working Paper No. 01/2011

37 Pages Posted: 17 Jan 2011

See all articles by Marc Flandreau

Marc Flandreau

Centre for Economic Policy Research (CEPR)

Kim Oosterlinck

Université Libre de Bruxelles - SBS-EM, CEB

Date Written: January 16, 2011

Abstract

The emergence of the gold standard has for a long time been viewed as inevitable. Fluctuations of the gold-silver exchange rate in world markets were accused to lead to brutal and unsustainable switches of bimetallic countries’ money supplies. However, more recent work has shown that the option character of bimetallism provided a stabilizing feedback loop. Using original data, this paper provides support to the new view. Using quotation prices for Indian Government bonds, we analyze agents’ expectations between 1860 and 1890. The intuition is that the spread between gold and silver bonds issued by the same entity (India) and backed by a credible agent (Britain) is a “pure” measure of the silver risk. The analysis shows that up until 1874 markets were expecting bimetallism to last. It is only after this date that markets gradually started requiring a premium to hold silver bonds indicating their belief that gold would eventually become the only metallic standard.

Suggested Citation

Flandreau, Marc and Oosterlinck, Kim, Was the Emergence of the International Gold Standard Expected? Melodramatic Evidence from Indian Government Securities (January 16, 2011). Graduate Institute of International and Development Studies Working Paper No. 01/2011. Available at SSRN: https://ssrn.com/abstract=1741823 or http://dx.doi.org/10.2139/ssrn.1741823

Marc Flandreau (Contact Author)

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Kim Oosterlinck

Université Libre de Bruxelles - SBS-EM, CEB ( email )

50 Avenue Roosevelt, CP114/03
Brussels 1050
Belgium

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