Latin Monetary Union
The Latin Monetary Union, or " Union latine" (not to be confused with the of the same international organization name, with cultural vocation, created in 1983) was consisted a monetary Convention of December 23rd 1865, linking five countries European signatories. The object of this Treaty was to institute a common monetary organization based on the gold-silver mode of bimetalism. The Union was, de facto, dissolved on January 1st 1927.
Context of convention
The system of the germinal franc
France had instituted a monetary Système, said germinal Franc, in reference to the Laws founders of the 18 germinal year III (April 7th 1795) and 7 germinal year XI (March 27th 1803) instituting:-
a system of decimal money of account (1 franc = 100 centimes)
- a system of currency of payment bimetallist, where gold and the money had legal tender:
The coexistence of two monetary standards, gold and the money, created a potential source of instability. The system of the germinal franc rested on a risky bet of invariance of the relative price of gold and money and supposed that volumes and the conditions of production of two metals would remain stable. A crisis of the payments could thus occur constantly.
The environment international currency
The adoption partial or complete of the system of the germinal franc outside the French borders had created an embryo of Système international currency. Decimalization had been adopted by the United States since 1795. Napoleon i had tried to export, with the Revolution, the system of Germinal in Europe. Although this attempt by the force failed initially, the system was then adopted, with complete freedom, by Belgium in 1830, by Switzerland and Italy in 1860 (the duchy of Parma and the Kingdom of Piedmont-Sardinia had already adopted it since 1815).
The gold discoveries of 1848 in California and 1851 in Australia caused a fall in the relative price of gold, worsened by the effects of the American Civil War, which obliged England to import more textiles of India and to pay the debit balances of its Balance of the payments silver. The conjugation of these events caused a crisis of the payments in silver moneys according to the following mechanism:
- the greatest relative scarcity of the Argent compared to the Or modified the relative price between two metals. The physical value of the money exceeded its legal value. The difference between these two values represented a premium on metal .
- When the premium covered the costs of recasting, striking and transport, it then became interesting to proceed to the Thésaurisation or the export of the silver moneys.
- the withdrawal of the silver moneys involved a crisis of the payments and money circulation, by absence of currency symbols in sufficient quantity. In this respect, for France, the reduction in strike out of money between 1856 and 1864 is important:
The States of the germinal system were going to answer in the disorder this crisis of the payments. Belgium put an end to the legal tender gold on December 28th 1850. January 31st 1860, Switzerland decreased the title of the silver coins to 835% O. Italy made in the same way on August 24th 1862. France adopted a Law, on May 25th, 1864, having a similar measure for the parts of 20 and 50 centimes. The monetary disorder gained and made the exchanges more difficult.
The convocation of the Convention of Paris, on November 20th, 1865, was an attempt at harmonization of the weights and titles of the national currencies to save the mode bimetallist of Germinal and to restore the intercommunication of the silver moneys between the countries signatories.
Principles of the union
Chaired by Felix Esquirou de Parieu, fervent supporter of a monetary union “is a prelude to with the peaceful federations of the future”, the Convention of Paris, said “Latin Union”, was signed on December 23rd, 1865. It posed like principles:
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the monetary standardization :
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the levelling off of the emission of the Token coinages of 2,1, ½ and 1/5e of Unit of Account at a rate of 6 francs per capita (article 9). It should be noted that the ceilings of emission of the fiduciary Monnaie were not concerned and remained a pure prerogative of the States. In the same way for the currencies of balk.
- the maintenance of the national Units of Account .
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the integral bimetalism : The striking of gold and the money was free and their legal tender capacity was unlimited. Any private individual could bring gold and money to striking and was held to accept in payment, without limitation, the money main roads and gold currencies (except for the money token coinages with 835% O whose striking was reserved for the States and the limited legal tender capacity).
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intercommunication of the currencies inside the Union: the currencies of each State have legal tender in the Union (with a levelling off for the money token coinages).
In addition, the Treaty was renewable by renewal by tacit agreement every 15 years, starting from January 1st 1880, except denunciation by a country signatory (article 14). And it was open to other signatories (article 12), subject to unanimity of the Member States of the Union (according to conventions of 1878 and 1885).
Evolution and end of the Latin Monetary Union
A fast but incomplete success
The success of the Latin Monetary Union, measured by the number of countries having adopted the system (32 on the whole), posed the bases of a Système international currency. However, the failure of the congress international currency of 1867 (cf will infra) confined the Union in a monetary statute of Area.
Intrinsic problems of operation of the Union
The operation of the Union was intrinsically obstructed by two problems: fluctuations of the relative courses of metals and fluctuations in exchange.
The differences in values between the physical currency and the legal tender, created by the exogenic variations of the prices of metals on their markets formed a premium on metal . The exit point of the metal species was equal to the positive premium on metal plus the costs of cast iron/striking/transport. When the price of metal reached this exit point, the species in this metal were thésaurisées or exported and disappeared (left) from circulation, according to the mechanism describes by the Loi of Gresham. These exits (of circulation) contributed cause a drop in the price of the metal which flowed then on the market of metal, thus car-controlling the system. The point entrance was equal to the negative premium on metal minus the costs of striking/transport. When the price of metal reached the entrance point, metal was brought to striking. These entries (in circulation) contributed to increase the price of the metal which ebbed of the market to be struck.
The differences between the course of the Exchange in a currency and its legal tender, related to the exogenic creation of fiduciary Currency and Representative money (not framed by the Convention of 1865) formed a premium on the exchange . When the premium on the exchange of a currency, the Swiss franc for example, was positive, the species of the other currencies were exported towards Switzerland and disappeared from national circulation, là-aussi according to the mechanism describes by the law of Gresham.
The cross variations of the prices of metals and the rates of exchange made complex the comprehension of the problems monetary and their resolution.
An evolutionary union
The Union could adapt its principles to the problems of the variations of the exchanges and the courses of metals. But at the price of a disavowal of the principles adopted initially. Successive conventions (1874, 1878, 1885, 1893, 1908) of the Latin Monetary Union directed it in two directions far away from the principles founders of the Convention of 1865.
The Union evolved quickly to a monometallism gold:
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the Congress of 1867 (Europe, the USA, Russia and Ottoman Empire) adopted the principle of an international currency based on the 5 francs gold and its multiples. It posed also the principle of the gold standard with one transitional period for the bimetalism. The Congress failed in front of the opposition of Prussia, England and the central banks, private at the time. However, the Convention of Vienna of July 21st 1868 unified the postage rates with the franc like Unit of monetary Account common.
- In 1873, whereas the production of money increased, the USA gave up the principle of the freedom of striking of the money and Germany adopted the monometallism gold. The Latin Union followed the movement. By additional Convention of January 31st, 1874, the principle of liberty of striking was limited by fixing of quotas. The Convention of 1878 suspended the striking of the silver moneys in the Union. The Convention of November 6th, 1885 envisaged gold refunding of the ecus of money.
In addition, second major change, the renationalization of the circulation of the silver moneys:
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the additional Convention of November 15th, 1893 removed the principle of intercommunication of the token coinages of money Italian.
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the additional Convention of November 4th, 1908 removed the intercommunication of the Greek currencies.
The Treaty of 1865 was gradually emptied of its substance. The basic principles of the bimetalism and intercommunication were not applied any more since 1878 for the money.
The crisis of 1914
The war of 1914 involved the Thésaurisation money and gold currencies. The Law of August 5th, 1914 worsened the phenomenon by instituting the forced course of the ticket and the suspension of gold convertibility.
The emission of tickets strongly increased, but at different speeds according to the Convention countries. Consequently, the equivalences of exchange between the currencies of the Union diverged quickly. In parallel, the prices of metal money strongly oscillated.
The combined instability of the exchanges and the markets of metals, caused by the war, made impossible the return to the principles of operation of the Latin Monetary Union the shortly after the war. But the use of several subterfuges made it possible to make last the Union a few years moreover, on paper. Thus, France will not emit any more currencies of gold but will continue to emit Token coinages of 1/2f, 1f and 2f until in 1920, according to the standards of the Convention of 1865. In 1921, the Seigneuriage having become negative on the striking of the money, France will prefer more not to emit token coinages rather than to denounce the Convention of 1865, involving a crisis of the payments which will lead to the striking of Monnaies of need, emitted in the name of the chambers of commerce.
This stage, the Union was null and void: with what could thus serve well a Treaty which prevented from beating currency? End 1925, of tired war, Belgium denounced the convention, which was dissolved on January 1st, 1927.
The last coins to be struck according to the standarts of the UML are the 50 Cts., 1 Frs. & 2 Frs Swiss in 1967.
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