Data

The Making of Global Finance 1880-1913

This database is background for Marc Flandreau and Frédéric Zumer, 2004, The Making of Global Finance 1880-1913, Paris: OECD (proofs).

It can serve as a valuable tool to current-day policy dilemmas: by using historical data, it is possible to see which policies in the past led to enhanced international financing for development. It includes historical data that will interest all scholars of economics and economic history as well as the casual reader.

This database covers the first large experiment in financial globalisation. It occurred in the second half of the 19th century when capital flows were basically unrestrained, with a potentially very high degree of capital mobility. The late 19th century displayed a very high degree of current-account openness, illustrated by a large disconnection between domestic saving and investment. This integration has only recently been revived, thus raising the possibility of many useful parallels between the first age of globalisation (1848-1914) and the second (1973 to the present).

A vast database has been gathered, for a sample of 17 countries (Argentina, Austria-Hungary, Belgium, Brazil, Denmark, France, Germany, Greece, Italy, Netherlands, Norway, Portugal, Russia, Spain, Sweden, Switzerland, and the United Kingdom) over 34 years (1880-1913). The wide array of nations includes both capital-rich and capital-poor countries, in both Europe and Latin America, both South and North. This database differs from existing ones in being larger (especially for capital-poor countries, for which figures are harder to get) and in including more variables. Unlike those in other studies, this database, because it makes extensive use of archival sources, is as close as possible to the information monitored by contemporary investors. Collecting it also helped to reveal flaws in the official sources normally used in similar studies. Contemporary observers often knew of them and routinely adjusted official figures when they included known biases.
 

Early Forward Exchange Markets 1876-1914

The “Early Forward Exchange Markets 1876-1914” database is background for Marc Flandreau and John Komlos, 2006, “Target Zones in Theory and History: Credibility, Efficiency, and Policy Autonomy”, Journal of Monetary Economics, 53, 8 (CEPR DP 5199).

This is the first publicly available database for nineteenth-century forward exchange markets. Futures in foreign exchange facilitated transactions in both goods and securities across borders if both countries were not on the same commodity standard. Thus, there was no reason for futures among the German reichsmark, the French franc, or the pound sterling to develop, because all were on the gold standard in the late nineteenth century. However, among the ruble, mark, and the gulden such a need did exist, insofar as Germany was both Russia’s and Austria-Hungary’s most important trading partner, and both were effectively on a flexible exchange rate until the 1890s. The value of the gulden did vary enormously in the final third of the nineteenth century, and its gyrations could be quite dangerous for international financial transactions. It was in this climate of uncertainty that the biggest market in currency futures came into being in Central Europe.

In Vienna, as in other European markets, there was also a forward market in general securities. These forward transactions were to be settled – liquidated – in a major settlement procedure taking place at the end of the month. The settlement date and operation was named after the French word “liquidation,” which designated the same operation occurring every fortnight in the Paris official market. As emphasized by Haupt [1894], international arbitrage in securities was a routine operation in late-nineteenth-century Europe that brought substantial profits. It rested on lending securities where the “report” rate (difference between spot and forward price) was high and borrowing money where the rate was low. Doing so, however, involved an element of risk due to the possibility of exchange fluctuations. This was especially a problem for arbitrage between western European financial centers and Central and Eastern ones such as Vienna and St. Peterburg, which had close financial connections with Western Europe (large chunks of Russian or Austro-Hungarian securities were held in Western Europe), but which experienced violent exchange rate movements. Obviously, the only way to be covered against these fluctuations was to have a forward exchange market that would clear at the same dates as the markets for forward securities, and thus enable one to perform a “true” (i.e. risk free) arbitrage. It is thus not surprising to find that, along with the ultimo quotes for general securities there were also in Vienna ultimo quotes for German marks and Russian rubles, in addition to the spot (or per cassa) rates. Not surprisingly, the settlement dates for both forward securities and forward exchange operations coincided: it was the end-of-month “liquidation”. Interestingly, this provides a rationale for the development of the forward markets that points to the combined influence of floating exchange rates and international financial arbitrage.