ABSTRACT
The recent crisis in the eurozone has revived discussions on the adoption of symmetric policies aimed at preventing fundamental disequilibria within systems characterised by fixed exchange rates among different currencies, or by a monetary union, where a single currency has replaced the system’s national currencies, as in the case of the eurozone itself. In monetary history this debate has often been focused on previous systems having these features, and in particular on the working of the gold standard: on whether its members pursued, in fact and to what extent, symmetric policies to preserve the system’s stability. In this paper (1) we explore the meaning and consequences of asymmetric monetary policies under the gold standard, and (2) we also offer a new measure of asymmetry in the running of the gold standard for the biggest five European economies in the pre-WWI period (UK, Italy, France, Germany and Spain). We use this measure to draw policy implications deriving from the gold standard constraints.
Our empirical results show that the UK was the country that followed more closely the symmetry rule of the game; on the opposite side was Italy. The common pattern of behaviour was an under-issue of currency (minimal, in the case of Britain). In addition, Italy, Germany France and Spain seemed to have paid attention to the deviations of the coverage ratio from a (high) safety ratio in order to maintain convertibility. Our analysis suggests that achieving a safety ratio of 35% seemed to have been taken as a pre-condition to be able to abide by symmetry in the running of the gold standard.
