In the last few decades, the idea of a currency union between several countries has become commonplace with the growth and stabilization of the European Union and the Eurozone. Currently, seventeen countries within the European Union and two outside the union – Kosovo and Montenegro – use the euro as their currency. While this is the largest and most successful currency union of the modern era, it is not the first attempted union by far, even within Europe. The idea of a European currency union in fact dates back to the 1800s.
Back in the 19th century, globalization was increasing at a steady pace, and the idea of a standard world currency was starting to gain traction among many influential politicians. The British pound was already the global standard as the dollar is today, helped by the British Empire’s expansion to all corners of the world. In 1865, the governments of France, Italy, Belgium, and Switzerland agreed on a convention to form the Latin Monetary Union and standardize the sizes of each of their currency. The Latin Monetary Union was not a formal currency union as each country kept its own ability to print and issue its own coinage. However, as most countries were still on a bimetallic standard, the union standardized the weight of each country’s coins. Under the agreement which came into force in August of 1866, each coin would be made from 4.5 grams of silver, set the silver to gold exchange rate at 15.5 to 1, and made the currencies interchangeable between the countries in the union.
The Latin Monetary Union grew over the following decades. In 1868, Spain and Greece joined the union, adding the drachma and peso to the three francs and the lira. In the 1870s and 1880s, Serbia, Romania, Bulgaria, San Marino, and Venezuela joined the six western European nations in the union. While the monetary union seemed successful at first, the continually declining price of silver was a constant issue for the members of the union. The members of the Latin Monetary Union outlawed the minting of silver currency in 1873 temporarily, but banned it outright and effectively went on the gold standard in 1878 after silver prices continued to plummet.
While the plummeting price of silver was the main issue facing the Latin Monetary Union, it was not the only one. Another problem was the failure to prevent the printing of paper currency. With paper currency and the fluctuating silver coins in continued circulation, the stability of the currency was very questionable. Greece’s membership also caused problems for the other union members, with its political and economic instability in the turn of the century spreading to the other nations in the union. After the shock to the global economy caused by the First World War, the Latin Monetary Union for the most part dissolved, with many members moving off of the standard set by the union agreement and moving to a more profitable gold standard. However, the Latin Monetary Union remained de jure in effect until 1927.
The early attempt at a transnational currency union may have been a failure, but it demonstrated the issues that would face later currency unions and showed what necessary policies were needed to keep one relatively stable. The main difference between it and modern unions such as the Eurozone is that the Eurozone has a single central bank issuing the coins, instead of multiple independent national governments. This independent oversight makes it less susceptible to economic shocks facing a single member. Additionally, the move off of a gold or silver standard makes influencing the value of the currency through coordinated economic and monetary policy across the continent makes the euro more controllable in its value.