Why the United Kingdom must say 'No'
By Rt Hon. David Heathcoat-Amory, MP E-mail: david@wells.tory.org.uk

A LOOK BACK

All nations of any size or importance have their own currencies. Indeed the establishment of a single currency and a central bank is an essential development after political unification.

In 1834 the German States formed a Zollverein (customs union) and this was followed by a series of Acts to standardise their coinage, which was based on silver. A variety of coins were minted and used by the states and only some were commonly recognised. Bank notes were not legal tender.

It was not until the political unification of Germany at the end of the Franco-Prussian war in 1871 that steps were taken to set up a central bank. In 1876 the Prussian Bank became the Reichbank, which controlled all coinage and paper currency, and Germany switched to the gold standard.

In Italy, the economically diverse 19th century states were united much more abruptly in 1861. The new Italian government then sought to centralise the issue of paper currency, and it took another 32 years before the former National Bank of Piedmont became the Bank of Italy. It is worth noting that unification and the introduction of a single currency did nothing to halt the continuing economic divergence between the prosperous North and the poor South.

The World's best known federation, the United States, had no unified currency throughout its early history. Before the Civil War the banking system consisted of a collection of state banks, each issuing its own notes which traded at a premium or discount to each other. After the Civil War the Federal Government asserted a degree of control through a series of National Banking Acts, but it was not until 1914 that the Federal Reserve Bank was founded.

These examples and others show that the establishment of a central bank and a single currency follows the creation of a federal state or complete political union.(Note 1) The attempt by the European Union to reverse this order and introduce a single currency before the creation of a federal state is without historical precedent.