Market Integration in the Golden Periphery - the Lisbon/London Exchange, 1854-1891

The existence of a self-regulating arbitrage mechanism under the gold standard has been traditionally considered as one of its main advantages, and attracted a corresponding research interest. This research is arguably relevant not only to test for the efficiency of the “gold points”, but also to study the evolution of financial integration during the so-called first era of globalization. Our first aim with this paper is to contribute to the enlargement of the scope of the literature by considering the case of Portugal that adhered to the system, in 1854, at a much earlier phase than the majority of countries, thus allowing for a broader perspective on the evolution of the efficiency of the foreign exchange market. As a typical “peripheral” country, Portugal can be used as the starting point for a study of the degree of integration of the periphery within the system. Furthermore, the Portuguese exchange also illustrates the role in practice of large players in sustaining currency stability, over and beyond the atomistic forces of arbitrage and speculation assumed in conventional theoretical frameworks. We also address the question of the credibility of the authorities’ commitment to the standard, through the perspective of the target zone literature.

O Porto Medieval e o seu termo : segundo o Livro da Rua Nova

Estudo demográfico e social sobre a área de influência do Porto tendo por base um livro, o livro de abertura da Rua Nova no ano de 1438

Market Integration in the Golden periphery The Lisbon/London Exchange, 1854-1891.

The existence of a self-regulating arbitrage mechanism under the gold standard has been tradi- tionally considered as one of its main advantages, and attracted a corresponding research interest. This research is arguably relevant not only to test for the e±ciency of the \gold points", but also to study the evolution of ¯nancial integration during the so-called ¯rst era of globalization. Our ¯rst aim with this paper is to contribute to the enlargement of the scope of the literature by considering the case of Portugal that adhered to the system, in 1854, at a much earlier phase than the ma- jority of countries, thus allowing for a broader perspective on the evolution of the e±ciency of the foreign exchange market. As a typical \peripheral" country, Portugal can be used as the starting point for a study of the degree of integration of the periphery within the system. Furthermore, the Portuguese exchange also illustrates the role in practice of large players in sustaining currency stability, over and beyond the atomistic forces of arbitrage and speculation assumed in conven- tional theoretical frameworks. We also address the question of the credibility of the authorities' commitment to the standard, through the perspective of the target zone literature

Market Integration in the Golden Periphery. The Lisbon/London Exchange, 1854–1891.

Portugal was the first independent nation to follow Britain in joining the gold standard. Although beset by persistent current account deficits and heavily dependent on foreign capital inflows, it enjoyed a relatively stable tenure of 37 years on gold. This paper shows how it was possible to secure currency stability, despite a lower credibility for the peg and a higher incidence of gold point violations than in core countries. The explanation lies in the central role played by institutional actors, such as the Bank of Portugal and/or the government, whose interventions in the exchange market kept the parity within the band