ABSTRACT
A large number of papers have looked at the history of the gold standard for inspiration for the European Monetary Union (EMU), initially for guidance on the EMU’s architecture, and later to address the eurozone’s pertinent problems. In this approach, the euro area and the gold standard are compared with each other because they are both systems of fixed exchange rates with full capital mobility, resulting in the complete absence of an autonomous monetary policy to deal with asymmetric shocks within the monetary zone. In this contribution, we take the opposite perspective and emphasize instead how the stability of the gold standard may be partly explained by the fact that it was not a rigid framework. Using a new database of central bank balance sheets, interest rates and exchange rates between 1891 and 1913, we show how central banks were able to absorb domestic and international shocks in the short term through sterilization and capital control. We then review the current eurosystem tools that are similar in kind to the central banks’ flexibility features during the gold standard: long-term refinancing operations (LTRO), macroprudential policy, Emerging Liquidity Assistance (ELA) and, in the last resort, temporary capital controls.
