The Decline and Fall of the Scandinavian Currency Union 1914 – 1924: Events in the Aftermath of World War I
AbstractIn 1873, Denmark, Norway and Sweden formed the Scandinavian Currency Union (SCU) and adopted the gold standard. The Union worked fairly smoothly during the next thirty years and was partly extended until 1914. The outbreak of World War I triggered a series of events that eventually would lead to the formal cancellation of the union in 1924. The suspension of convertibility and the export prohibition on gold in 1914, opened exchange rate tensions within the union, and acted as a first nail in the SCU’s coffin. Although the countries de facto had their currencies valued at different rates externally, the treaty of 1873 made them tradable at par within the union. This conflict, between de facto situation and de jure regulation, opened arbitrage opportunities for the public; but also resulted in opportunistic behaviour in the relation between the Scandinavian Central Banks. This study of the break-up of the SCU finds that the gold standard functioned as a unifying straitjacket on monetary policy and was an important prerequisite for a monetary union without a common central bank. It also challenges earlier work on the break-up of the SCU, by suggesting that the most important factor behind the centrifugal tensions within the Currency Union was the improved Swedish balance of trade following the outbreak of Word War I. The fact that wartime trade performance differed between the three countries made the currency area face an asymmetric external shock that required an exchange-rate adjustment – causing the fall of the union.
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Bibliographic InfoPaper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 609.
Length: 54 pages
Date of creation: 10 Jun 2004
Date of revision:
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Postal: The Economic Research Institute, Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden
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Monetary Unions; Scandinavian Currency Union; Centralbanking; Centralbank Cooperation; Financial history;
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Denmark and Norway were the PIIGS of the Scandinavian Currency Union
by Lars Christensen in The Market Monetarist on 2012-06-12 12:26:34
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