Other sites of Banque de France

You are here

The EBS 1821-1873: analysis, results and comments

Under the European Bimetallic System, the settlement of international debts led to arbitrage calculations between the sending of the bill of exchange, priced at the exchange rate, and the sending of the gold or silver (coins or ingots), priced at the rates quoted on the respective markets. The particularity of the EBS (in this case at the level of the triangle formed by Paris, London and Hamburg) as an international monetary system was that these arbitrages were bimetallic even though only one of the three cities, Paris, was in a bimetallic monetary regime zone (the institutional framework).

The remarkable stability in exchange rates and bullion prices has astonished specialists on the period, particularly with regard to the relationship between the market prices of gold and silver, despite the quantities of both metals fluctuating significantly on a global scale during the period. The other success of the EBS is equally surprising, namely the stability of exchange rates between the currencies of the three zones, even though the major boom in international trade in the 19th century brought with it fluctuations between external balance surpluses and deficits.

In order to account for these characteristics, several analysis tools have been defined using combinations of individual database series: different pars (legal, gold, silver and bimetallic), gold and silver market price ratios for each of the three markets under review and lastly the divergence between the exchange rate and the bimetallic par (definitions, series and charts for these quantities and values).

Thanks to these tools, we can present the EBS through four stylised facts

  • The bilateral external balance position (determined using the bimetallic par) is one of the factors that affected changes in exchange rates.

  • The evolution of the three relative gold-silver prices is noteworthy for its stability and price convergence, and breaks from the disorderly fluctuations observed between 1800 and 1820, which we can see in the chart below.

  • The evolution of gold pars and silver pars, which combine the free market prices and legal prices for bullion in each city, is the second factor that affected changes in exchange rates.

  • The interdependence between exchange rates and bullion prices were the result of constant bimetallic arbitrage during the period: results and comments.

Updated on: 05/04/2018 15:16