Market Integration in the Golden Periphery. The Lisbon/London Exchange, 1854–1891

Abstract

The existence of a self-regulating arbitrage mechanism under the gold standard has been traditionally considered as one of its main advantages, and attracted a corresponding research interest. This research is arguably relevant not only to test for the efficiency of the "gold points", but also to study the evolution of financial integration during the so-called first era of globalization. Our first aim with this paper is to contribute to the enlargement of the scope of the literature by considering the case of Portugal that adhered to the system, in 1854, at a much earlier phase than the majority of countries, thus allowing for a broader perspective on the evolution of the efficiency of the foreign exchange market. As a typical "peripheral" country, Portugal can be used as the starting point for a study of the degree of integration of the periphery within the system. Furthermore, the Portuguese exchange also illustrates the role in practice of large players in sustaining currency stability, over and beyond the atomistic forces of arbitrage and speculation assumed in conventional theoretical frameworks. We also address the question of the credibility of the authorities' commitment to the standard, through the perspective of the target zone literature.

An ‘art’, not a ‘science’? Central bank management in Portugal under the gold standard, 1863–871

“…55 55 Esteves, Reis and Ferramosca, in ‘Market integration’, put the gold export point at 52.5 pence for a parity rate of 53.33 pence to the mil reis , during 1861–82, and 52.82 during 1882–91. The Portuguese currency unit was the real (plural reis ), of which 1 million = 1 conto .…”

“…63 63 See Esteves, Reis, and Ferramosca, ‘Market integration’, the only study that provides details on gold points in Portugal. …”

“…88 88 For the general picture, see Bordo and McDonald, ‘Violations’; for details on the Portuguese case, see Esteves, Reis and Ferramosca, ‘Market integration’. …”

Competing Bimetallic Ratios: Amsterdam, London, and Bullion Arbitrage in Mid-Eighteenth Century

“…28588) and Quinn (1996). The specie-point mechanism was first calculated for the case of the classical gold standard (Morgenstern 1959;Clark 1984;Marcuzzo and Rosselli 1987;Officer 1983Officer , 1986Officer , 1989Officer , 1996Canjels, Prakesh-Canjels, and Taylor, 2004;Esteves, Reis, and Ferramosca, 2009). Flandreau (1995Flandreau ( , 1996Flandreau ( , 2002Flandreau ( , 2004 extended the notion of gold points for the gold standard to bimetallic points for the bimetallic standard in the nineteenth century.…”

The Origins of Foreign Exchange Policy: The National Bank of Belgium and the Quest for Monetary Independence in the 1850s

“…This was not the case in most other financial centres, where forward exchange markets developed in the aftermath of the First World War 3 . But this does not mean that foreign exchange intervention techniques were unknown elsewhere: recent historical research has shown that the central banks of peripheral countries like Portugal (Reis 2007;Esteves et al 2009), Norway (Øksendal 2008), or Sweden (Ögren 2007) were important players on the spot exchange market. Nowhere, however, the scale and scope of foreign exchange policy were comparable to those reached by the NBB in its early years.…”