University of Cambridge > > Financial History Seminar > ’Midas, transmuting all, into paper’: the Bank of England and the Banque de France during the Napoleonic Wars

’Midas, transmuting all, into paper’: the Bank of England and the Banque de France during the Napoleonic Wars

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This paper re-assesses Revolutionary and Napoleonic wartime economic policy in light of recent development in monetary theory and re-emerging interest in balance sheets. We explain exactly how and why the Bank of England was able to adopt a set of flexible and accommodative policies and why the Banque de France was not. We interpret the actions of the central banks through stylized models on (i) optimal gold reserve holdings; (ii) asset liability management; and (iii) the publicís ináation expectations formation. The key contribution of our analysis is that the government and the Bank of England combined economically, politically and legally (with Acts of Parliament, Committees of investigation and ináuence on public opinion all employed) to ensure the ongoing solvency of the Bank of England, which allowed the Bank to continue to make substantial profits throughout the Napoleonic Wars, and as this was a credible arrangement it allowed merchants to continue to trade with non-convertible Bank of England notes and the government to finance the war effort with significant recourse to unfunded debt. We find that the Order of the Council’s decision to suspend gold payments temporarily a§orded protection to the government and its central bank in the conflicting goals of price stability and war finance. By contrast, as the French monetary system had lost its reputation in the 18th century, Napoleonic finance had to evolve within a rigid and limiting framework.

This talk is part of the Financial History Seminar series.

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