The Crisis of Bimetallism and the Formation of the Latin Monetary Union

Abstract

Latin Monetary Union was an attempte of an international monetary uniformity put into practice by Latin countries from 1865 to 1926, during about 60 years. The aim of this paper is to explore the process in which the Latin Monetary Union had formed, putting emphasis on France, and also to consider the historical meanings of its formation and the characters of the union in the first period. In 1850's a great deal of silver flowed out of France and gold flowed into in exchange for the silver as the price of silver rised in comparison with that of gold. In consequence of the outflow of silver, a serious shortage of silver pieces (i.e. small moneys) occurred in France. And in the course of taking measure to this problem, some arguments which required the abolishment of bimetallism were urged. The cause of these arguments was that bimetallism which fixed the relative value of gold and silver caused the speculation of precious metals and the shortage of small moneys. That is, the problem was focused on the alternative of bimetallism or gold standard. But the proposal of the abolishment of bimetallism (i.e. the adoption of gold standard) could not get a majority. It was finally concluded in 1864 that small silver coins were demonetized and protected against the speculation. This decision of policy reflected the interests of the financial world. In other words, having two tasks (1) to extend their business into eastern Asia, (2) to ensure the reserve of Bank of France, they objected to the demonetization of silver coins. By the way, the shortage of small moneys occurred in other Latin countries, too. Then, France, Belgium, Switzerland and Italy which had adopted the common monetary system formed the Latin Monetary Union to solve this problem cooperatively. The union took over the policy which had already been adopted by France, that is, preserving bimetallism and demonetizing small silver coins. In other words, France did not accept gold standard required by the other three countries. Moreover French government expected that the union would develop into a larger one much more western countries took part in.