Working Paper: CEPR ID: DP13652
Authors: Rui Esteves; Pilar Nogues-Marco
Abstract: We divide this paper into four sections. The first section outlines the taxonomy of commodity-based monetary regimes in Europe and their advantages and costs. The second section describes the main international monetary flows in the Early Modern period and relates them to East-West balance-of-trade adjustments and monetary systems in Asia (1700-1800). In the third section, we turn to the development of the foreign exchange market, which was mostly based on bills of exchange in this period. We explain the expansion of bills-of-exchange market from the European to the intercontinental network in the mid-19th century. The final section then investigates how nominal exchange rates and relative prices contributed to the global current account adjustments in the near pre-gold standard period (1820s-1870s).
Keywords: monetary systems; balance of payments; price-specie flow mechanism; real effective exchange rates
JEL Codes: E42; F31; N10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| commodity money systems in Europe (E42) | expansion of intercontinental trade (F19) |
| integration of bullion markets (G15) | limitations on policymakers' options for monetary policy (E52) |
| transition from commodity money to bills of exchange (E42) | facilitation of long-distance trade (F10) |
| transition from commodity money to bills of exchange (E42) | facilitation of financial transactions (F38) |
| nominal exchange rates and relative prices (F31) | global current account adjustments (F32) |