Research Discussion Papers, Bank of Finland
No 20/2013:
Midas, transmuting all, into paper: The Bank of England and the Banque de France during the Revolutionary and Napoleonic Wars
Jagjit S. Chadha ()
and Elisa Newby ()
Abstract: This paper assesses Revolutionary and Napoleonic wartime
economic policy. Suspension of gold convertibility in 1797 allowed the Bank
of England to nurture British monetary orthodoxy. The Order of the Privy
Council suspended gold payments on Bank of England notes and afforded
simultaneous protection to the government and the Bank in pursuit of the
conflicting goals of price stability and war finance. The government, the
Bank of England and the commercial banks formed a loose alliance drawing on
due political and legal processes and also paid close attention to public
opinion. We suggest that the ongoing solvency of the Bank of England was
facilitated by suspension and allowed the Bank to continue to make
substantial profits throughout the Wars. It became acceptable for merchants
to continue to trade with non-convertible Bank of England notes and for the
government to finance the war effort, even with significant recourse to
unfunded debt. These aspects combined to create a suspension of
convertibility that did not undermine the currency. By contrast, the
Assignats debacle had cost the French monetary system its reputation in the
last decade of the 18th century and so Napoleonic .finance had to evolve
within a more rigid and limiting framework.
Keywords: monetary orthodoxy; suspension of convertibility; war finance; (follow links to similar papers)
JEL-Codes: C61; E31; E42; E58; N13; (follow links to similar papers)
54 pages, September 16, 2013
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