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Monetary Nationalism Is a Curse

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Here’s a passage from the not-to-be-missed book by Benn Steil and Manuel Hinds, Money, Markets & Sovereignty [2] (Yale University Press, 2009), pages 94-95:

There are many reasons why economies became dramatically more integrated after 1870, both within and across countries.  Among these are tremendous technological advances in transportation and communication, particularly the railroad, steamship, telegraph, cable, and refrigeration.  The spread of free-trade thinking from Britain to the European continent, underpinned by vested interests in Germany and France which saw greater export opportunities afforded through trade liberalization, also contributed to large declines in some import tariffs.  But the disintegration of markets internationally, particularly capital markets, coincided strongly with the tribulations and eventual collapse of the classical gold standard after 1914.  The heyday of globalization was an historical period in which monetary nationalism was widely seen as a sign of backwardness; adherence to a universally acknowledged standard of value a sign of abiding among the civilized nations.  And those nations that adhered most reliably to the gold standard (such as Canada, Australia, and the United States) paid lower borrowing rates in the international capital markets than those which adhered less (such as Argentina, Brazil, and Chile).  The gold standard not only reduced exchange risk, but country default risk.  The evidence suggests strongly that being on the gold standard represented the most credible form of commitment to pursuing prudent fiscal and monetary policies over time, given the ever-present temptation to inflate away the burden of debt and manufacture seigniorage revenues.

UPDATE: From [3]The Economist [3].