Coins of the month - July 2014

The Latin Monetary Union (LMU) Part Two: How it failed to become a European monetary Union

After having concluded the Monetary Convention of 1865, the French government, following the initiative of Félix Esquirou de Parieu and of the Ministry of Foreign Affairs, embraced a more ambitious view of the Latin Monetary Union than the Finance Ministries. It was no longer  just an issue of facilitating trans-frontier transactions, but now also became an attempt to create a European or Universal currency through the injection of federalist ideas. These views were chiefly developed by Parieu, a lawyer by training and, by later study, an expert on public finances. Parieu headed the early monetary conferences of the LMU, and began writing articles for an international audience from a theoretical and practical point of view. Over the period from 1866 to 1870, he devised a much larger project for a "Europa" currency, a European federation, a European commission and a European parliament, with the possibility of enlarging it further if the US were willing to participate.

The French government attempted to enlarge the Monetary Union by inviting all European countries and the main world powers to the 1867 International Monetary Conference in Paris. Twenty countries were invited to attend, including LMU members, German States, Scandinavian states, the UK, Spain, the USA, and the Austro-Hungarian, Russian and the Ottoman Empires. Candidacies to join the LMU were encouraged. The monetary conference produced a surprising consensus for an international gold standard, the LMU coinage system and a central representative coin to be minted in all countries with a multiple fixed value in several currencies: it would be a gold piece of 25 gold francs-lire-pesetas, equal to 1 new British pound (whose weight would have to be reduced by less than 1%), to 5 US dollars (whose weight would also have to change by a little more than 1%) and to 10 Austria-German florins.

The post conference developments were not as positive in terms of reactions by the key governments, whose delegates often had a very limited mandate, only as observers in the case of Britain. In the UK the Disraeli government indeed rejected the proposal, as did the popular press of the time. When the Conservatives were defeated and a Liberal government took over in 1868, headed by Gladstone, his new Chancellor of the Exchequer, Robert Lowe, was instead convinced that the project had been successful on the continent and that joining it was essential. Lowe also considered that the British gold coinage was so worn down to be below legal tender requirements and needed a complete recoinage anyway, as the economist William Stanley Jevons argued. In 1869 Lowe proposed to the British parliament to proceed to equalize the pound to 25 gold francs, keeping the difference as a Mint tax to cover the cost of recoinage. The proposal caused a storm of opposition and even Gladstone declared himself privately to be astonished by the proposal. Only free traders, some economists, mint officials and Chambers of Commerce supported Lowe, while the City, the Bank of England and the press opposed it. Ultimately the refusal of the French Treasury and of the Bank of France and private bankers to abandon bimetallism in favour of the gold standard destroyed the opportunity to involve the UK.

Sweden and Austria-Hungary adopted a gold coinage according to the rules set at the Paris Conference (a 10 francs Carolin coin in Sweden from 1868, and a 20 francs-8 florins in Austria-Hungary from 1870, in two versions reflecting the double nature of the Habsburg monarchy, here illustrated). These Swedish and Austro-Hungarian gold coins were accepted at par by French State cashiers, by a decision of the French Finance Ministry. A similar move was made by Russia in the 1880s, when it introduced a 5 gold ruble piece of 20 francs at a time  when it started accessing the French capital market for government loans, associated with a military alliance. Spain and Romania adopted the full LMU monetary system, under the name of peseta and lei (here illustrated with the first silver peseta introduced by the provisional government in 1869 and with a Romanian gold 20 lei of Carol I in 1883). In the late 1860s, they were followed by a number of Latin American countries and later by Serbia and Bulgaria, while even the Finnish government (under Russian rule) enquired about joining.

Southern German states supported international monetary union as a part of a strategy to resist Prussian expansionism, but Bismarck temporized, waiting for the opportunity to crush Napoleon III on all fields. The Franco-Prussian war of 1870-71 led to the creation of the German empire and the German mark, based on a third of the Prussian thaler rather than on any international agreement. British and German refusal of the plan for international unification led to the collapse of possible enlargements of the Latin Monetary Union. Ultimately the initial LMU members accepted only the first enlargement of the union, to Greece, and then refused any other candidacy, except for limited bilateral agreements on some gold coins, as we shall see in the third episode of LMU history.