The impact of the Scandinavian Monetary Union on financial market integration

In the period from 1877 until the outbreak of World War I, Sweden, Denmark and Norway constituted a currency area – the Scandinavian Monetary Union (SMU). They shared the same unit of account, the gold krone. Both full-bodied gold coins and token coins of the three countries served as legal tender and circulated freely within the union. Initially set up to preserve the traditional circulation of neighbouring coins in the border regions, the central bank cooperation was extended to a mutual settlement mechanism (1885) and later reciprocal acceptance of notes at par (1901). A desire for economic integration was present under the surface of this practical approach, mirroring the predominant liberal worldview of the 1870s. For instance, the Norwegian government saw a common coinage as an instrument for ‘knitting together the three nations to a single commercial territory’. In the parliamentary debate on Norwegian entry into the union a supporter argued that ‘the real objective of unity in coin had to be to bring the countries closer together’. Thus, from the outset, the SMU was a combination of practical arrangements and lofty ambitions.