The early years of the Second Bank of the United States: an historical perspective on the transition to EMU

Abstract

In this study, we attempt to learn from the experience of the Second Bank of the United States (SBUS) about the potential interaction of inflation convergence and monetary unification in the perspective of European Monetary Union (EMU). In the early part of the nineteenth century, the American economy switched from an inter-regional flexible exchange rate regime to a monetary union under the aegis of the SBUS. The evolution of inflation rates was not without affecting the transition process towards this union. There is, however, a mixed empirical evidence of a quick convergence of regional inflation rates following the creation of the Bank. This may be explained in two ways. On the one hand, the transition process involved both convergence of price indices and inflation rates. On the other hand, the Bank encountered credibility problems in implementing a consistent monetary policy at the federal level. In such a context, the viability of the transition seems to have hinged, in part, on the political appeal of the American Union for its members. Copyright © 2000 John Wiley & Sons, Ltd.