LATIN UNION, The. The institution of the Latin Union marks an important epoch in the history of bimetallism, for, while it was the gold discoveries of California and Australia which were the direct cause of the organization of this monetary convention, it was the down ward tendency in the price of silver that re sulted in the practical suspension of that coin age by the parties to the treaty.
In 1853, when the subsidiary silver of the United States had begun to be seriously affected by the cheapened price of gold, the Treasury Department found it necessary to reduce the quantity of silver in its small coins in order that they might still remain below the value of gold. A few years passed and Switzerland also found herself face to face with the same financial problem, but she, instead of following the example of the United States, solved her difficulty by lowering the fineness of standard for her small coins to 800 thousandths fine.
This method of equalizing the coinage nat urally had a tendency to act disadvantageously for those countries, like France and Italy, where the standard remained much higher than that of Switzerland, for, as the coins of one nation circulated commonly in all the countries that had adopted the franc system, it was soon re alized that, in accordance with Gresham's law, the cheaper Swiss coins would eventually super sede the dearer coins. It was unreasonable to suppose that the coins of France or Italy, con taining as they did so much more pure silver, could hope to compete with the cheap coins of Switzerland, so long as the latter passed cur rent at the same nominal value.
Such was the fear, and it was not long be fore these predictions began to be fulfilled. The Swiss coins, being only 800 thousandths fire, soon crossed the French frontier, where they were exchanged for French coins of the same nominal value. The latter were then exported to Switzerland, where, after having been melted and recoined, they netted a considerable profit for the speculator. By April 1864 the situation had become so thoroughly unsatisfactory that the French government was compelled to issue a decree prohibiting the receipt of the Swiss coins at the customs-house and other public offices.
In response to overtures from Belgium a conference of delegates representing four of the interested states—France, Italy, Switzerland and Belgium—met in Paris 20 Nov. 1865 and agreed to establish a uniform coinage, the new system to be based upon the principles adopted by the United States in 1853. Thus, the silver coins — the 2 franc, 1 franc, 50 centimes and 20 centimes pieces—were reduced from a standard of 900 thousandths fine to a uniform fineness of 835 thousandths, a policy which low ered the small coins of the several countries to the position of a subsidiary currency.
In adopting this policy the members of the Latin Union had not discarded the principles of bimetallism. Gold coins of the value of 100, 50, 20, 10 and 5 francs, and a 5-franc silver piece, were all to be coined at the old standard of 900 thousandths fine and free coinage, at a ratio of 15% to 1, was granted to any holder of gold or silver bullion who desired to obtain any of the gold coins or 5-franc silver pieces. The subsidiary currency was formally declared legal tender in all business transactions between individuals of the states that coined them for an amount not in excess of 50 francs.
The treaty under which the Latin Union was formed was ratified by each government and went into effect 1 Aug. 1866. In 1868 Greece also became a party to the convention, which, by its own terms, was to exist until 1 Jan. 1880, but the downward tendency shown by silver during 1873 compelled the delegates to call an other conference. On this occasion the fear most generally entertained was that the German mints would flood the several countries with their demonetized silver. A meeting was held at Paris, therefore, 30 Jan. 1874, at which the full power of free coinage of silver was with drawn from individuals and the amount of sil ver 5-franc pieces to be coined by the several treaty states was greatly reduced.