Adjusting to the Gold Rush: Endogenous Bullion Points and the French Balance of Payments: 1846-1870
Résumé
In this paper, we lay the foundations of bullion points theory in the context of exchange rate analysis between bimetallic and monometallic nations. The theory is then applied to the study of the Paris-London exchange rates between 1846 and 1870. In particular, we show that both the position and spread of bullion points between monometallic and bimetallic nations reacted endogenously to shocks on international gold and silver markets. The distance between the upper and lower specie points tended to shrink when large disequilibria occurred on world bullion markets, and to expand when these disequilibria receded. Second, we show that bullion points constrictions and dilations as well as exchange rate movements triggered specie flows in and out of France, as a way to stabilize initial imbalances. France acted as the arbitrageur of last resort between the gold and silver segments of the international monetary system, and this in turn placed a substantial amount of 'endogenous' pressure on its monetary system