Brief Overview of European Monetary History



European Monetary History

European countries have played with monetary unions schemes before. Of course in ancient times there was the Greek drachm that was displaced by the Roman denarius. After the Dark Ages there was the reintroduction of the denarius by Charlemagne known as the denier. That eventually became the English penny and the German pfennig.  


Europe has always seen that the free movement of labor and capital was critical to economic expansion. The most famous of the successful Monetary Unions was the Zollverein (German Customs Union). The German Federation comprised 39 independent political units at the beginning of the 19th century. They all minted coins in gold, silver, and bronze with their own distinct standard of weights, measures and fineness.



As with all developments, the Zollverein Monetary Union in Germany was a reaction to a completely chaotic monetary system. In 1816 – 70 different types of currency (mostly foreign) were being used in the Rhineland alone and while they may have had some tangible value that did not make them legal tender for public debts. Consequently, eventually 25 private banks were established only between 1847 and 1857 with the express intention of printing banknotes to circulate as legal tender.

In 1815, the German States introduced the idea of free movement of labor and capital. By 1818 the Zollverein was formed (within Prussia). In 1834, the Zollverein Monetary Union expanded, which led eventually to the political union between the German states. The rival competition in those days was Austria. The success of this monetary union which created a federal Germany was based upon a common language and culture.

Vienna Congress 1814-15
Franz I  (1804-1835)


It was in 1815 with the decisions reached at the Congress of Vienna that markets the beginning of a real European economic flowering. It was the agreement in favor of labor mobility in Europe but not so for trade. Like Bretton Woods followed World War II, the Congress of Vienna followed the defeat of Napoleon in 1814. It took place in Vienna from September 1814 to June 1815. The objective of the Congress was to settle the many issues arising from the French Revolutionary Wars, the Napoleonic Wars, and the dissolution of the Holy Roman Empire.

Although representatives from all the states which had participated in the wars were invited, the principal negotiations were conducted by the “Big Four” (Britain, Russia, Prussia, and Austria) and, later on, royalist France with Louis XVIII (1815-1824). This resulted in the redrawing of the continent’s political map, which established the boundaries of France, the Duchy of Warsaw, Netherlands, and the German Kingdom of Saxony along with the states of the Rhine, as well as various Italian territories. This led to the creation of spheres of influence through which Austria, Britain, France and Russia brokered local and regional problems. The Congress of Vienna served as the model for later organizations such as the League of Nations and United Nations.


Currency was always a problem. Napoleon at least attempted to create a standard among the nations he had conquered. The baffling number of (mostly non-convertible) different currencies did not help. Napoleon’s gold coinage was set with a standard with a weight of 6.45 grams at .900 fine amounting to .1867 of a troy ounce. Spain was at a different standard altogether with a weight of 6.77 grams at .875 fineness amounting to .19129 of a troy ounce. Britain stopped minting the Guinea and introduced the Sovereign but this was 7.23 grams at .900 fine amounting to .2354 of a troy ounce. The Papacy used a 5 scudi with a weight at 8.66 grams at .900 fine with the heaviest weight of all being .2508 of a troy ounce. So clearly, there was no unified currency standard throughout Europe despite the fact that precious metals were used for the coinage..

 Wilhelm III 1824 Thaler

The German principalities formed a customs union as early as 1818. The three regional groupings (the Northern, Central and Southern) were united in 1833. In 1828, Prussia harmonized its customs tariffs with the other members of the Federation, making it possible to pay duties in gold or silver. Some members hesitantly experimented with new fixed exchange rate convertible currencies. But, in practice, the union already had a single currency: the Vereinsmunze.


The Zollverein (Customs Union) was established in 1834 to facilitate trade by reducing its costs. This was done by compelling most of the members to choose between two monetary standards (the Thaler and the Gulden) in 1838. Much as the Bundesbank was to Europe in the second half of the twentieth century, the Prussian central bank became the effective Central Bank of the Federation from 1847 on. Prussia was by far the dominant member of the union, as it comprised 70% of the population and land mass of the future Germany.


Wilhelm IV 1853 Thaler

The North German Thaler was fixed at 1.75 to the South German Gulden and, in 1856 (when Austria became informally associated with the Union), the German thaler was valued at 1.5 Austrian Florins (gulden) which were 12.34 grams at .900 fine. This was the last attempted collaboration which proved to be short lived since Prussia and Austria went to war in 1866. It would be this war that eventually proved to have widespread implications contributing to the demonetization of silver, the Panic of 1873 in the USA, and the Long Depression that lasted in the USA for 26 years.

 1874 50 mark Imperial Note

Otto von Bismarck (1815-1898) (Prussia) was a statesman who dominated politics for almost 30 years from the time he became president in 1862 until he was dismissed in 1890. Nevertheless, in 1871 it was his drive that united Germany, of course the Bavarian objections notwithstanding. This no doubt helped greatly in maintaining European peace at the time.

1871 German Gold


The German Empire unification was heralded by the coinage law of 1871 that established the mark as the currency of Germany. The gold mark was established at 7.9650 grams per 20 marks at .900 fine. The 1871 Act allowed the various states to continue to issue coins provided they complied with the new standard.


The Act of 1871 was followed later by the Coinage Act of 1873 which was enacted on July 9, 1873. This Act further created the unification of the German currency by nationalizing it, adopting the gold mark and rendering all issues previously struck by its states obsolete. The Empire issued small fractional coins in silver and copper 5 marks and under. All larger denominations and gold were issued by various states.



Bismarck founded the Reichsbank in 1875 and charged it with issuing the new Reichsmark. Bismarck forced the Germans to accept the new currency as the only legal tender throughout the first German Reich. Germany’s new single currency was in effect a monetary union. It survived two World Wars, a devastating bout of inflation in 1923, and a monetary meltdown after the Second World War. The stolid and trustworthy Bundesbank succeeded the Reichsmark and the Union was finally vanquished only by the bureaucracy in Brussels and its euro.

 1873 Coinage Act

This is the only case in history of a successful monetary union that had not been preceded by a political one. We must keep in mind that was rather unusual since Prussia was the regional bully and actively enforced strict compliance on the other members of the Federation. Prussia understood that above all else, it was absolutely paramount to maintain a stable currency and sought to preserve that status at all costs unlike the current attempt to create the Euro. The key that brought stability was also that any politically motivated inflation and devaluation were ruled out for the first time giving rise to conscious monetary management.

 Latin Monetary Union

Between 1865 and 1927 there was the Latin Monetary Union which was fairly successful until socialistic ideas began to take hold and government debts began to rise with the advent of Marxism. This whole idea that debts were OK because it was for a good cause would become addictive. During this century, we have also seen the Scandinavian Monetary Union which lasted until 1924. England, on the other hand, never participated in European monetary unions schemes then or now under the Euro. For this reason, the history of the pound sterling extends back some 1,300 years compared to most European currencies which date back only to the end of the Second World War.



The British pound after almost 1300 years is still called “sterling” referring to its origin being one pound of coin silver .925 known as sterling silver. The first silver penny to be issued in England was that of the King of Mercia, Offa (757-796AD) who also issued coins depicting his wife Cynethryth in Roman tradition. His new monetary innovation was in part a restoration of the old Roman denarius that had effectively been wiped out by debasement during the 3rd century AD following a similar trend in France in 755AD there known as the denier. These silver pennies appeared around 782AD and were known as “sterlings” (silver pennies), which quickly became the main currency in Anglo-Saxon kingdoms. It is possible that they may have appeared as early as 775AD.  Nonetheless, the weight of these silver pennies was such that 240 of them equaled one English pound, which was a tremendous fortune during the 8th century.



It took inflation and the reappearance of gold that disappeared from circulation during the 6th century in Western Europe until the 15th century when the first one pound coin appeared under Henry VII (1485-1509) known as the Sovereign with a weight of 15.55 grams. Likewise, the mark was one-third of a English pound and it too had been a unit of account rather than a coin. The British coinage was at first highly regarded and was valued higher in Venice than in London.


Nevertheless, with the development of more standardized currency during the 19th century, we find that the US$5 was equivalent to the German 20 marks, French 20 francs and a British sovereign which were all slightly less than a 1/4 ounce of gold. In the postwar era, we have also see attempts at monetary systems by arrangement such as the ERM. The point is that EMU is not the first attempt at monetary union and may not be the last.

See Monetary History of the World



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