Central Bank Cooperation and Lending of Last Resort in the Scandinavian Monetary Union
The Scandinavian Monetary Union (henceforth: SMU) was established by Sweden, Denmark and Norway in the years 1873-75. While each member country continued to issue its own coins and notes, the names and coinage specifications were harmonized and the three national currencies were fixed against gold at par with each other. With coins and notes of all member states circulating throughout the SMU at par, the SMU had effectively a single currency, the Scandinavian crown (krone, krona); it was therefore called møntunionen, “the currency union” or myntkonvensjonen, “the coin convention”. The decisions concerning the adoption of a common unit of account, as well as the standardised metallic content of the common physical coins, followed the discussions that had taken place in the prior statistical and monetary pan-European meetings concerning a common currency in the 1850s and 1860s – including the forerunner of the SMU – the Latin Monetary Union (LMU). The pan-European debates as well as the LMU and SMU have been well studied with regard to the monetary regime as such. Discussions concerning problems of coordination, that is of asymmetries within a monetary union, have received less attention. In this paper we focus on the debates and policies that were implemented within the SMU to deal with such asymmetries. In particular, we look at the central banks’ handling of financial crises in the SMU, studying to which extent lending of last resort and other measures of financial stabilization were carried out in cooperation between them, and to which extent they were managed at the national level. Our study focuses on discussions about most pivotal moments in the SMU’s history: 1) the foundation of the SMU in 1873 and extension in 1875, 2) economic crises (1878/79; 1899 in Norway; 1907/08; 1920/21), 3) the extension of the clearing agreement within the SMU in 1885, 4) the decision to accept also notes at par, 5) political crises, in particular Norway leaving the union with Sweden in 1905; the outbreak of World War I; the attempts to restore gold parity post-1914. Next to our account of these events we detail and discuss contemporaneous comments of Scandinavian economists on central bank cooperation and lending of last resort in the SMU. Alongside with the positions of prominent Swedish economists such as Wicksell, Davidson and Cassel we also examine contributions by lesser known Danish and Norwegian economists.
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Keywords: monetary union; central bank cooperation; financial crises; lending of last resort; gold standard
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