Currency Unions and Heterogeneous Trade Effects: The Case of the Latin Monetary Union

35 Pages Posted: 24 Nov 2017

See all articles by Jacopo Timini

Jacopo Timini

Universidad Carlos III de Madrid; Banco de España; Centre for European Policy Studies (CEPS)

Date Written: November 21, 2017


The Latin Monetary Union (LMU) agreement signed in December 1865 by France, Italy, Belgium and Switzerland standardised gold and silver coinage in member countries and allowed free circulation of national coins in the Union. In his seminal study, Flandreau (2000) found no evidence of an overall positive effect of the LMU on trade. In this paper, I estimate the effects of this currency agreement on trade. In my gravity model I explicitly take into account the changing conditions in the international environment that affected the LMU’s underlying economic foundations (i.e. the limits on silver coinage agreed upon in 1874) and its rules (i.e. the “liquidation clause” of 1885). I also test the existence of heterogeneous effects on bilateral trade within the LMU. In line with Flandreau, I find no significant LMU trade effects. However, I find support for the hypothesis that the LMU had significant trade effects for the period 1865-1874. These effects were nonetheless concentrated in trade flows between France and the rest of the LMU members, following a hub-and-spokes structure. Moreover, I find evidence for the existence of an 1874 “LMU-wide” structural break, which affected the course of trade flows within the Union.

Keywords: International Trade, Currency Unions, Latin Monetary Union, Gravity Model, Bimetallism

JEL Classification: F45, N73

Suggested Citation

Timini, Jacopo, Currency Unions and Heterogeneous Trade Effects: The Case of the Latin Monetary Union (November 21, 2017). Banco de Espana Working Paper No. 1739. Available at SSRN: or

Jacopo Timini (Contact Author)

Universidad Carlos III de Madrid ( email )

CL. de Madrid 126
Madrid, 28903

Banco de España

Alcala 50
Madrid 28014

Centre for European Policy Studies (CEPS) ( email )

1 Place du Congres, 1000
Brussels, 1000

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