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'Midas, transmuting all, into paper': the Bank of England and the Banque de France during the Napoleonic Wars

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  • Jagjit S.Chadha

    ()

  • Elisa Newby

    ()

Abstract

This paper assesses Revolutionary and Napoleonic wartime economic policy. Suspension of gold convertibility in 1797 allowed the Bank of England to nurture British monetary orthodoxy. The Order of the Privy Council suspended gold payments on Bank of England notes and afforded simultaneous protection to the government and the Bank in pursuit of the conflicting goals of price stability and war finance. The government, the Bank of England and the commercial banks formed a loose alliance drawing on due political and legal processes and also paid close attention to public opinion. We suggest that the ongoing solvency of the Bank of England was facilitated by suspension and allowed the Bank to continue to make substantial profits throughout the Wars. It became acceptable for merchants to continue to trade with non-convertible Bank of England notes and for the government to finance the war effort, even with significant recourse to unfunded debt. These aspects combined to create a suspension of convertibility that did not undermine the currency. By contrast, the Assignats debacle had cost the French monetary system its reputation in the last decade of the 18th century and so Napoleonic finance had to evolve within a more rigid and limiting framework.

Suggested Citation

  • Jagjit S.Chadha & Elisa Newby, 2013. "'Midas, transmuting all, into paper': the Bank of England and the Banque de France during the Napoleonic Wars," Studies in Economics 1315, School of Economics, University of Kent.
  • Handle: RePEc:ukc:ukcedp:1315
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    References listed on IDEAS

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    1. Chadha, Jagjit S. & Corrado, Luisa, 2012. "Macro-prudential policy on liquidity: What does a DSGE model tell us?," Journal of Economics and Business, Elsevier, vol. 64(1), pages 37-62.
    2. Bordo, Michael D & Redish, Angela, 1993. "Maximizing Seignorage Revenue during Temporary Suspensions of Convertibility: A Note," Oxford Economic Papers, Oxford University Press, vol. 45(1), pages 157-168, January.
    3. Perlman, Morris, 1986. "The Bullionist Controversy Revisited," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 745-762, August.
    4. Michael D. Bordo & Anna J. Schwartz, 1994. "The Specie Standard as a Contingent Rule: Some Evidence for Core and Peripheral Countries, 1880-1990," NBER Working Papers 4860, National Bureau of Economic Research, Inc.
    5. Bordo, Michael D. & White, Eugene N., 1991. "A Tale of Two Currencies: British and French Finance During the Napoleonic Wars," The Journal of Economic History, Cambridge University Press, vol. 51(02), pages 303-316, June.
    6. Barro, Robert J, 1979. "Money and the Price Level under the Gold Standard," Economic Journal, Royal Economic Society, vol. 89(353), pages 13-33, March.
    7. Bordo Michael D. & Kydland Finn E., 1995. "The Gold Standard As a Rule: An Essay in Exploration," Explorations in Economic History, Elsevier, vol. 32(4), pages 423-464, October.
    8. Grossman, Herschel I & Van Huyck, John B, 1988. "Sovereign Debt as a Contingent Claim: Excusable Default, Repudiation, and Reputation," American Economic Review, American Economic Association, vol. 78(5), pages 1088-1097, December.
    9. Flandreau, Marc, 2007. "Pillars of Globalization: A history of monetary policy targets, 1797-1997," CEPR Discussion Papers 6252, C.E.P.R. Discussion Papers.
    10. Ricardo, David, 1810. "The High Price of Bullion, a Proof of the Depreciation of Bank Notes," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, number ricardo1810.
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    More about this item

    Keywords

    Monetary Orthodoxy; Suspension of Convertibility; War Finance;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • N13 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: Pre-1913

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