Currency and the state: monetary policies and the determinants of supply (1688-1797)

Abstract

The state plays a dual role in connection with the currency. On the one hand it defines monetary policy, while on the other it is one of the actors involved in the demand for money, and accordingly has an influence on the amount of money that is issued. The object of this study is to analyse the state's activity in this dual role. First we analyse the types of monetary policy adopted by the state. The key objective is to understand to what extent D. Pedro II's law of 4 August 1688 represented a turning point in relation to the policies implemented in earlier periods. To do this our study goes back in time to the mid-14th century, in order to put more accurately into context the relevance of the long period of legislative stability which occurred in the 18^th century. Secondly, and given that the state is one of the actors which defines the amount of money issued, it is important to establish what variables explain the public element of the issue of currency. At a time when war, the justice system and the royal court were the areas which absorbed the largest part of state resources, we will analyse the relative significance of these different fields for the Portuguese state during the eighteenth century.