Latin Monetary Union - History

History

By a convention dated 23 December 1865, France, Belgium, Italy, and Switzerland formed the Latin Monetary Union and agreed to change their national currencies to a standard of 4.5 grams of silver or 0.290322 gram of gold (a ratio of 15.5 to 1) and make them freely interchangeable. The agreement came into force on 1 August 1866. The four nations were joined by Spain and Greece in 1868, and Romania, Bulgaria, Venezuela, Serbia and San Marino in 1889. In 1904, the Danish West Indies were also placed on this standard but did not join the Union itself. When Albania emerged from the Ottoman Empire as an independent nation in 1912, coins of the Latin Monetary Union from France, Italy, Greece, and Austria-Hungary began to circulate in place of the Ottoman Lira. Albania did not however mint its own coins, or issue its own paper money until it adopted an independent monetary system in 1925.

The LMU served the function of facilitating trade between different countries by setting the standards by which gold and silver currency could be minted and exchanged. In this manner a French trader could accept Italian lire for his goods with confidence that it could be converted back to a comparable amount of francs.

With the tacit agreement of Napoleon III of France, Giacomo Cardinal Antonelli, the administrator of the Papal Treasury, embarked on an ambitious increase in silver coinage without the prescribed amount of metal. The papal coins quickly became debased and excessively circulated in other union states, to the profit of the Holy See, but eventually Swiss and French banks rejected papal coins and the Papal States were ejected from the Union.

By 1873, the decreasing value of silver made it profitable to mint silver in exchange for gold at the Union's standard rate of 15.5 ounces to 1. Indeed, in all of 1871 and 1872 the French mint had received just 5,000,000 francs of silver for conversion to coin, but in 1873 alone received 154,000,000 francs. Fearing an influx of silver coinage, the member nations of the Union agreed in Paris on January 30, 1874, to limit the free conversion of silver temporarily. By 1878, with no recovery in the silver price in sight, minting of silver coinage was suspended absolutely. From 1873 onwards, the Union was on a de facto gold standard.