## The Dissolution of the Austro-Hungarian Empire: Lessons for Currency Reform

_IMF Working Papers, July 1, 1992_

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## Bibliographic details
- Authors: Michael G. Spencer, Peter M. Garber
- Published: July 1, 1992
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451848731.001

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### Summary of the paper
- Investigates the currency reforms undertaken subsequent to the dissolution of the Austro-Hungarian Empire in 1918.
- The reforms were motivated by the lack of coordination of monetary policy and the absence of a rule for sharing seigniorage.
- Because the Successor States’ reforms were not carried out simultaneously, individuals could choose where to convert their crowns based on where their real value was greatest.
- The cross-border flows of notes was substantial, to the detriment of Hungary which was last to reform.
- The Austrian and Hungarian currencies were stabilized only with the help of League of Nations financial programs.

### Key findings and evidence
- Lack of coordinated monetary policy among Successor States created arbitrage opportunities for holders of crowns.
- Absence of a rule for sharing seigniorage contributed to competitive and destabilizing cross-border note flows.
- Timing of reforms mattered: the Successor State that reformed last (Hungary) suffered net detriment from cross-border conversions.
- External financial assistance played a decisive role: stabilization of Austrian and Hungarian currencies required League of Nations financial programs.

### Policy implications and lessons for currency reform
- Coordination of monetary policy among states emerging from a common currency area is critical to prevent destabilizing cross-border flows of notes.
- Establishing clear rules for sharing seigniorage can reduce incentives for competitive conversion and related arbitrage.
- Sequencing and simultaneity of reform actions influence distributional outcomes across successor states; last-mover disadvantages can be significant.
- International financial support can be essential to stabilize currencies in the aftermath of political dissolution and uncoordinated reforms.

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/30/the-dissolution-of-the-austro-hungarian-empire-lessons-for-currency-reform-816_