Monetary Regimes and Trade before the Classical Gold Standard: Evidence from the Latin Monetary Union

Abstract

This paper reexamines the trade effects of the Latin Monetary Union (LMU), a 19th century agreement to standardize gold and silver coinage among several European countries. The LMU provides a useful setting to study whether monetary arrangements fostered trade before the classical gold standard, when gold, silver, bimetallic, and paper regimes coexisted. Since some countries already shared other monetary standards, I classify pairs by regime and use historical bilateral trade flows and structural gravity modeling to estimate the LMU effect relative to pairs without a common arrangement. This brings the comparison closer to the one used in the literature on the gold standard and contemporary currency unions. The results suggest that the LMU increased trade between its members by approximately 30\% during its early years, when bimetallism was still credible. These effects then faded, converging to zero by the end of the 1870s. The evidence is consistent with a temporary trade effect operating through common coinage rules, expectations of monetary cooperation, and the credibility of the bimetallism.