The Latin Monetary Union, the Treaty of 1885 and the Liquidation Clause: The Difficulty to Leave a Monetary Union

In 1865 the LMU was founded by four countries (France, Belgium, Italy, Switzerland, to which Greece joined two years later). It was based on a bimetallic system and experienced a crisis in the Seventies due to a loss in the value of silver. Therefore, at the conference of 1885 for the renewal of the Convention, France asked to insert a clause in the new Treaty for the liquidation of the silver 5-francs coins (ecus), according to which, in case of break-up, each country undertook to redeem their ecus against gold. This measure would have hit especially Belgium and Italy that, however, during the conference, chose different strategies. Belgium fought to avoid the liquidation and abandoned the work of the conference, but was forced later on to accept the liquidation clause; Italy, instead, decided not to oppose the request despite the financial burden that would have resulted and achieved all the set objectives. What emerges is that in a monetary union it is difficult to balance the various interests involved in it, that it is difficult to leave a monetary union (as we have recently seen with the case of Greece in 2015), and that the power relationships and the diplomatic skills are often more decisive than law situations. For economic history, the Treaty of 1885 confirms the refusal of the concept of representative money, whose value does not depend on its own material substance but on a decision of the state.