'The Thin Film of Gold': The Limits of Monetary Commitments in the First Era of Globalization

Abstract:

In this paper we review the hypothesis that adherence to the gold standard facilitated the access of peripheral countries to European capital markets in the first era of financial globalization. To test whether the gold standard worked as a credible commitment mechanism – a "good housekeeping seal of approval" – we have assembled the largest possible dataset covering almost the entire foreign borrowing in the London market. Our results suggest that the gold effect identified in previous studies was a statistical illusion generated principally by limited country samples. The market looked behind "the thin film of gold" not only at economic fundamentals but at political determinants of creditworthiness.

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