Monetary sovereignty during the classical gold standard era: the Ottoman Empire and Europe, 1880-1913

The classical gold standard, which prevailed from the 1870s to the First World War, was characterised by fixed exchange rates, free convertibility and perfect capital mobility and was considered the dominant international monetary system of the time. As trilemma hypothesis suggests, the Ottoman Empire enjoyed fixed exchange rates and foreign capital flows under the golden rule, but lost its monetary sovereignty. However, the extent of this loss was far more apparent than in other core and peripheral countries. As a result, the gold standard in the Ottoman Empire was characterised by a set of “anomalies” such as the existence of competing monetary authorities, persistence of territorial exchange rates and monetary zones and widely circulating multiple standard and sub-standard coins. This paper analyses these unique features as changing degrees of monetary sovereignty under the golden rule and revisits the evidence. By relying on a new dataset, it compares the Ottoman case with major core and peripheral countries of Europe in 1880-1913. It explores the hypothesis that ability of the gold standard countries to determine the composition and size of the monetary base was not homogenous. The paper suggests that the differences in monetary sovereignty for the period can best be explained by differences in monetary institutions regulating the relationship between governments and central issue banks. This in return offers a framework explaining the wide variations across peripheries.