The Latin Monetary Union: Some Evidence on Europe's Failed Common Currency
Review of Development Finance, Vol. 1, pp. 131-149, 2011
53 Pages Posted: 5 Aug 2003 Last revised: 25 May 2011
Date Written: July 1, 2003
The Latin Monetary Union was initiated in 1865 by France, Belgium, Italy, and Switzerland. We find that LMU membership or adoption of a gold standard is frequently associated with lower volatility of private bill yields, bond yields, inflation, and deviations from Purchasing Power Parity. However, neither standard induces convergence with LMU leader France or gold standard leader Great Britain. Bond yield spreads indicate that adoption of the gold standard is more credible than membership of the LMU. Italy is an outlier, perhaps due to errant fiscal and monetary policies. A comparison to the modern EMS/EMU confirms that the LMU was a weaker and less credible currency arrangement.
Keywords: Currency union, European Monetary Union, EMU, Latin Monetary Union
JEL Classification: E5, F3, F4
Suggested Citation: Suggested Citation