The Monetary Dimensions of Colonialism: Why did Imperial Powers Create Currency Blocks?

Abstract

In the last few years, northern policymakers are increasingly interested in creating regional currency blocs which link their respective monetary systems more closely to those of nearby poorer 'southern' countries. To what extent does this new interest signal a kind of monetary 'neo-colonialism'? As a starting point for answering this question, I examine the motives that drove imperial powers in the late nineteenth and early twentieth centuries to launch monetary reforms in their colonies which created giant currency blocs centred around each of their respective home currencies. I argue that colonial monetary reforms were driven by diversity of goals that related to: (1) international transaction costs; (2) domestic transaction costs within the colonies; (3) macroeconomic influence; (4) seigniorage; and (5) political identities. I conclude that there are similarities - although they should not be overstated - between some of these motivations and those driving the new interest in giant currency blocs today.

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