What lessons does history teach us? What pitfalls should we avoid and
what features should we embrace?
People felt the need to create a uniform medium of exchange as early as
in Ancient Greece and Medieval Europe. Those proto-unions did not have
a central monetary authority or monetary policy, yet they functioned
surprisingly well in the uncomplicated economies of the time.
The first truly modern example would be the monetary union of Colonial
New England.
The four kinds of paper money printed by the New England colonies
(Connecticut, Massachusetts Bay, New Hampshire and Rhode Island) were
legal tender in all four until 1750. The governments of the colonies
even accepted them for tax payments. Massachusetts - by far the
dominant economy of the quartet - sustained this arrangement for almost
a century. The other colonies became so envious that they began to
print additional notes outside the union. Massachusetts - facing a
threat of devaluation and inflation - redeemed for silver its share of
the paper money in 1751. It then retired from the union, instituted its
own, silver-standard (mono-metallic), currency and never looked back.
A far more important attempt was the Latin Monetary Union (LMU). It was
dreamt up by the French, obsessed, as usual, by their declining
geopolitical fortunes and monetary prowess.
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