Monetary Union and Fragmentation

B14　—　Cross-cutting theme

Nations that had killed one another in two world wars made their currencies one.

Supervised by: Mitsuru Hayama　／　Reading time (main text): About 8 min (4,057 characters of text at 500 chars/min; exercises and readings not included)　／　Beyond the text: 11 exercises · 3 coins · 11 readings · 1 references

What this course teaches you to do

• You can state concretely what each country gives up when currencies are merged.
• You can give a case where the conversion ratio was decided politically, and explain what followed.
• You can explain the mechanism by which a fixed exchange rate comes under attack.
• When reading records of union, you can tell the economic calculation from the political decision.
• Can explain the monetary unification in the Low Countries (1339 agreement, vierlander) as an “accumulation of precedents”.
• Can discuss the one-to-one exchange rate between East and West Germany from both its positive and negative aspects.

Lessons (8)

1. What you give up by joiningIn monetary union you give up the exchange rate, the interest rate and the quantity issued. Only the budget stays yours.
2. The exchange ratio is sometimes decided by politicsThe conversion ratio is sometimes settled by politics. Do not confuse the economic sum with the political decision.
3. A fixed rate is a target for the stormA fixed rate becomes indefensible the moment people think it cannot be held. Union does not remove the problem; it moves it.
4. When a currency goes, what remainsA currency's legal death and its disappearance from custom do not coincide. Read the two apart in the records.
5. A broken promise, a lasting precedent — Seven hundred years in the Low CountriesTo attempt unification and fail. This repetition becomes the groundwork for a great integration to come later.
6. One-to-One Politics — The East's Hoard and the West's LedgerThe exchange rate was not an economic calculation but a political declaration. The miracle and its cost were two sides of the same decision.
7. Black Wednesday — The Day the Fixed-Rate Net Was BrokenA system that merely links separate currencies will strain with every storm. The day of defeat was also renamed the day of liberation.
8. Tracing a defunct currency's lineage — Defining its deathThe end of legal tender, exchange deadlines, and the fulfillment of promises. A currency's "death" has at least three dates.

Readings (11)

• War and money　Overview: 2,700 years of the world　AD 2002　A Currency to Prevent War
  The premise of §2. The prayer for a currency that prevents war is written here most plainly.
• The reunification　Germany　1990　The council room of the Bundesbank
  §2. The scene where the guardians of the currency themselves raised a note of caution.
• From the mark to the euro　Germany　1992　The European foreign-exchange market
  §3. The scene of a fixed rate under storm. The same storm bears another name in the island country.
• The twilight of the franc　France　1999–2002　A French exchange office
  §4. Note the fineness of the figure 6.55957.
• The century of division　Netherlands　December 1339　Flanders and Brabant, the council chamber
  Section 5. "The promise was broken. But the precedent remained."
• The reunification　Germany　the 1990s　The industrial region of eastern Germany
  Section 6. Miracle and cost are two sides of the same decision. A model for writing that encompasses both merits and demerits.
• Twenty years of crisis　Britain　1992　A dealing room in the City
  Section 7. Black Wednesday and White Wednesday. Two names for the same day.
• Division, frenzy, miracle　Germany　from 2002 to the present　The counter of the Deutsche Bundesbank
  Section 8. "Even if the system is over, the promise lives on."
• The grosso　Italy　the 13th century　The cities of northern Italy
  This is the other side of integration. On a peninsula where neighboring cities were a day's walk apart, the absence of a single ruler became a force for maintaining fineness.
• A Chosen End　Austria　2002　Inside a wallet
  Even when a currency ends, what is the difference between when it was eliminated from the outside in 1938, and when it was phased out by one's own hand through a treaty that set a conversion rate? Please read and compare these two endings.
• Sixty Euros a Day　Greece　2010–2018　Brussels
  Within a common currency, there is no exit through devaluing one's own national currency. Please see what was done instead in a debt restructuring that cut the face value of government bonds by 53.5 percent.

Assessment

11 exercises in this course (7 check, 1 compare, 3 written). Progress is recorded by self-assessment.

References

• Our money — European Central Bank　The central bank's own explanation of the introduction of the euro and current banknote denominations.

Only works and primary sources whose existence has been verified are listed.