Bimetallism in Europe - Doomed to Failure

Did you know that the European Monetary Union (EMU) is not the first time Europe has established a single currency market across all its member states? In 1865, four countries; Belgium, France, Italy and Switzerland formed a union called the Latin Monetary Union (LMU) for which silver and gold would be the standard. While accounts vary from one resource to another, most agree that in 1868, Bulgaria and Greece also joined the LMU. And a number of other countries, including Spain, Romania, Austria, Finland, Venezuela, Serbia, Montenegro, San Marino and the Papal States, while not official members of the LMU, used the same bimetallism specifications. A few countries, like Albania, which did not mint their own coins at the time, widely circulated those coins of the LMU.

Unlike the EMU, the LMU coins did not feature one common design on the reverse nor was there one central bank, but like the EMU, the coins were uniform in size and metal content and were interchangeable between member countries. Italian 20 lire, for example, could be used for trade in Switzerland for the same value as the Swiss 20 francs.

The French were the strongest proponents of the LMU. By the mid-1800s, they were importing more than they were exporting and were facing a decline in their monetary strength. Belgium had already adopted the French franc in 1830. Switzerland began using the franc in 1848 and then Italy in 1861 with the lira. The transition to a common currency seemed like the next logical step. An agreement was reached in December of 1865, and implemented on August 1, 1866.

National currencies of the four founding members of the LMU would change to a 15.5-to-1 ratio between silver and gold, or 4.5 grams of silver to 0.290322 gram of gold. The following standards would be adopted:

On paper the union spanned a period of 60 years, but its usefulness lasted a much shorter time. While the ratio of 15.5-to-1 worked well in theory, fewer than ten years after the union's formation, problems surfaced. The ratio significantly overvalued silver and did not take fluctuating metal prices into account. Profiteering resulted. Non-LMU countries began buying gold coins with overvalued silver and the gold of the LMU began to disappear. The union had to reduce the number of silver coins in circulation and eventually halt production completely. Although the LMU was formally disbanded in December of 1926, it had ceased to be viable well before the start of World War I.

Other problems also brought about its demise. For example, in the late 1860s, Italy was engaged in a costly war with Austria, resulting in increased credit from the national bank. Eventually the bank was released from its obligation to back its currency with gold and at that point, the lire was devalued by other members of the LMU. France had a similar situation when it was at war with Germany.

Union rules required that each country limit its money supply to no more than six francs per capita. The Papal States were denied membership because they minted six times more than allowed. In the early 1900s, Greece was ejected for decreasing the amount of gold in their coins. Nationalism played a key role. Each country interpreted the rules in a way that was best for its own self-interest.

The differences between the Latin Monetary Union and the current European Monetary Union are vast. However, some similarities may suggest that we are in the process of witnessing history repeat itself. It will be interesting to see if the EMU can survive the tumultuous world economics of recent years.

The PCGS Set Registry^SM offers a type set called Latin Monetary Union Denomination Type Set, Circulation Strikes (1865-1926). This could be a fun and interesting way to own silver and gold coins from six different European countries in all denominations that were circulated in the LMU. The set requires 42 coins and could be an excellent "starter" set for the person new to World coin collecting.