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The “Early Forward Exchange Markets, 1876-1914” database is background for Marc Flandreau and John Komlos, “Target Zones in Theory and History: Credibility, Efficiency, and Policy Autonomy,” Journal of Monetary Economics, forthcoming. The pre-publication version of the paper is available at http://www.cepr.org/pubs/new-dps/dplist.asp?dpno=5199

This is the first publicly available database for nineteenth-century forward exchange markets. Futures in such commodities as grain and wool were common practice in the Middle Ages,^[1] and futures in peppers were traded in Holland of the sixth century. Futures in stocks of the Dutch East-India company came into being shortly after its founding in 1602.^[2] Futures transactions gained considerable importance in the course of the nineteenth century, so much so, in fact, that by the 1880s most of the volume on the London stock exchange was said to be in forward transactions.^[3] The institutions and legal framework for this niche of the financial markets evolved during the course of the century, with a landmark being the founding of a clearing house in futures in Berlin in 1869, ahead of London.^[4] Contracts were generally dated at ultimo, that is, at the end of the month, although some exchanges also permitted medio contracts due at the middle of the month, and longer contracts were also known.^[5]

Futures in foreign exchange facilitated transactions in both goods and securities across borders if both countries were not on the same commodity standard. Thus, there was no reason for futures among the German reichsmark, the French franc, or the pound sterling to develop, because all were on the gold standard in the late nineteenth century. However, among the ruble, mark, and the gulden such a need did exist, insofar as Germany was both Russia’s and Austria-Hungary’s most important trading partner, and both were effectively on a flexible exchange rate until the 1890s. The value of the gulden did vary enormously in the final third of the nineteenth century, and its gyrations could be quite dangerous for international financial transactions. It was in this climate of uncertainty that the biggest market in currency futures came into being in Central Europe.

Thus Central Europe was a leader of financial innovation in the foreign exchange market.^[6] A large forward market in rubles came into being – first in Breslau and Königsberg – and then in Berlin,^[7] and futures in rubles were also traded in Vienna.^[8] Berlin lost its dominant position in futures in rubles at the end of 1894 when the Russian Finance minister announced that the government intended to defend a fixed exchange rate, and the Russian Central Bank began publishing these rates beginning in mid-April 1895.^[9] Gulden-mark futures came into being out of the same considerations, probably well before the data began to be published in the1870s.^[10]

In Vienna, as in other European markets, there was also a forward market in general securities. These forward transactions were to be settled – liquidated – in a major settlement procedure taking place at the end of the month. The settlement date and operation was named after the French word “liquidation,” which designated the same operation occurring every fortnight in the Paris official market. As emphasized by Haupt [1894], international arbitrage in securities was a routine operation in late-nineteenth-century Europe that brought substantial profits. It rested on lending securities where the “report” rate (difference between spot and forward price) was high and borrowing money where the rate was low. Doing so, however, involved an element of risk due to the possibility of exchange fluctuations. This was especially a problem for arbitrage between western European financial centers and Central and Eastern ones such as Vienna and St. Peterburg, which had close financial connections with Western Europe (large chunks of Russian or Austro-Hungarian securities were held in Western Europe), but which experienced violent exchange rate movements. Obviously, the only way to be covered against these fluctuations was to have a forward exchange market that would clear at the same dates as the markets for forward securities, and thus enable one to perform a “true” (i.e. risk free) arbitrage. It is thus not surprising to find that, along with the ultimo quotes for general securities there were also in Vienna ultimo quotes for German marks and Russian rubles, in addition to the spot (or per cassa) rates. Not surprisingly, the settlement dates for both forward securities and forward exchange operations coincided: it was the end-of-month “liquidation.”

Interestingly, this provides a rationale for the development of the forward markets that points to the combined influence of floating exchange rates and international financial arbitrage. To conclude, we should emphasize that these genuine forward exchange rates should not be mixed up with quotes for time deposits in foreign currency, such as three months bills, that some authors have mistakenly described as “forward” exchange rates. Purchases of three months bills implied a present purchase of a bill maturing in a foreign market several weeks later, while the genuine forward contracts to which this database refers, like today, were only agreements to perform a foreign exchange transaction at a future date. The difference between the two financial instruments is therefore obvious.

Our exchange rate data was collected from the Wiener Börsekammer Coursblätter, in the archive of the Wiener Börse A.G., Strauchgasse 1-3, A-1014 Vienna, Austria. Schneider et al. [1990] and Schneider et al. [1993] have spot, but not forward rates. Forward rates for the next “liquidation” were also published in the Wiener Zeitung as well as in the Neue Freie Presse. A comparison among the three sources indicated only marginal deviations. The other possible official market source is the Amtliches Coursblatt der Wiener Börse. We have compared monthly quotations for the Amtliches Coursblatt der Wiener Börse and the Wiener Zeitung between 1904 and 1907 (inclusive) and have not found any discrepancies at all in the quotations for the spot rates and just one slight variation in the forward quotations during these four years.

The reason for preferring the Coursblatter is that it is more systematic in that it gives a series of quotes, day high, day low, mid day, closing. Closing quotes were the most comprehensive and were thus the ones we collected. Spot (per cassa) exchange rates with Germany are reported from January 1870 until the summer of 1914 in all three sources. Until February 1873, though, they are reported in florins per 100 marks bancos, the Hamburg unit (Hamburg was Germany’s prominent foreign exchange market until Germany’s monetary unification which shifted business to Berlin). Rates switched to German marks in February 1873 with the advent of the new German currency. In order to obtain a homogeneous series in florins per mark, we divided the quotes in Mark Banco by 1.5. The sources report both “Geld” and “Waare” rates. “Geld” prices were the bid price, the price at which people were willing to buy foreign exchange and offering local money. “Waare” was the price at which people were offering to sell the "goods" (in this case Marks). Forward rates are available from November 1876 until June 1889 under the heading “Liquidations Course,” but no distinction was made between bid and ask rates. From July 1889 onwards, the forward rates were quoted as Ultimo, and the distinction between bid and ask rates appeared. Moreover, from January 1900 quotes are given in Crowns per 100 mark and the quotes were divided by two in order to produce a homogeneous series. Given that forward rates are quoted for the end of the month (liquidation date), the best date to collect the figures is the first day of the month after the previous liquidation. When this was a bank holiday, we collected the next available quote. Three observations need special mention:

• Spot quotes were not reported for 2.10.1871, and we used the rate for 3.10.1871.
• · 2.2.1911, the value for the spot rate: 117.800 is clearly a typographical error (because bid price exceeded the ask price) and we used instead 117.300, as the obvious value. We would have gotten the same results if we had used midday values.
• · For 01.04.1913 we use midday values for both spot and forward rates, because end-of-day value is unavailable for forward rate.

We then constructed two series. A series of average bid/ask rates ({Geld(t)+Waare(t)]/2, 1876:11-1914:7) and a series of bid rates (1889:7-1914:7). The database consists of florin/mark exchange rates (number of florins for 100 marks) and spans the period 1870:1-1914:7 (spot rates) and 1876:11-1914:7 (forward rates). Since study of forward exchange rates typically also involves exercises on covered interest parity conditions, data for interest rates (private and official) in both Vienna and Berlin are also provided. They were collected from same sources at same dates for Vienna. German interest rates were collected from The Economist, Der deutsche Ökonomist, and the Frankfurter Zeitung, at matching dates. Additional details are provided in the tables.

1. Archives
2. • Wiener Börsekammer Coursblätter, in the archive of the Wiener Börse A.G., Strauchgasse 1-3, A-1014 Vienna, Austria
   • Amtliches Coursblatt der Wiener Börse, in the archive of Crédit lyonnais, Bayeux, France.
3. Periodicals
4. • Deutsche Ökonomist
   • The Economist
   • Frankfurter Zeitung
   • Neue Freie Presse
   • Wiener Zeitung

^[1] Reinhold C. Mueller, The Venetian Money Market. Banks, Panics, and the Public Debt, 1200-1500 (Baltimore: The Johns Hopkins University Press, 1997), p. 149. The Artesian-Flemings in the 12th century (William Cade of St. Omer) and the Italian merchant firms of the later 13th century – such as the Riccardi, the Bardi, the Bettore, the Frescobaldi Bianchi e Neri, -- frequently bought futures expressed as loans: they would make agreements with various monastic estates to provide these estates with immediate cash payments or loans in return for a guarantee to supply specific amounts of wool, up to three years in advance. John Munro, 'Wool-Price Schedules and the Qualities of English Wools in the Later Middle Ages, ca. 1270-1499,' Textile History, 9 (1978): 118-69 (esp. pp. 126-29).

^[2] Herbert Schlicht, Börsen-terminhandel in Wetpapieren (Frankfurt: Fritz Knapp Verlag, 1972), p. 25.

^[3] Emil Struck, „Die Effektenbörse. Eine Vergleichung deutscher und englisher Zustände,“ Staats-und socialwissenschaftliche Forschungen, 3 (1881) 3, 1-244; here p. 27.

^[4] Struck, „Die Effektenbörse,» p. 37.

^[5] . The actual ultimo price was not easy to determine by any means, because of the imminent danger of manipulation of the market through bogus sales. As a consequence, an elaborate mechanism was brought into being for the determination of the ultimo price, with a sworn committee of experts making the final judgment call Obviously, in order for a future transaction to take place, expectations of future prices need to vary. For every seller of a futures contract there had to be a buyer. At ultimo, however, the financial instruments did not actually have to change hands. The account could be settled by paying the difference between the spot price and the agreed upon futures price. (In fact, contract could actually specify that the instruments would not be exchanged in any event, only the difference in value would be paid.) Yet, the parties to the ordinary contract (say, A and B) could well demand that the financial instrument be actually delivered. In that case, if the seller (A) did not possess the instrument, but B wanted to take possession, A had to purchase it in the open market. However, an aftermarket developed which enabled A to borrow the instrument for a month from a third party (C) without investing the whole value of the financial instrument; the contract between A and C stipulated that A would return the same instruments to C at the next ultimo. A’s position of borrowing was known in the commercial language of the time as Deport, and C’s position of selling was known as Report. Similarly, it might be the case that A had the instruments in hand and wanted B to take possession, but B did not have the money to pay A. In such a case B could lend the instruments to someone who did have the money, D, with the promise of repurchasing them at ultimo. Thus, the report market was an aftermarket of the futures market, but the report market did not exist in currency. Struck, „Die Effektenbörse,» pp. 30-39. For a study of the development of the market for reports see Flandreau and Sicsic 2000.

^[6] Lotz Walther, “Die Währungsfrage,” p. 1279.

^[7] Gerhart v. Schulze-Gävernitz, Volkswirtschaftliche Studien aus Russland (Leipzig: Duncker & Humblot, 1899), pp. 503-504.

^[8] Knapp, Staatliche Theorie des Geldes, p. 252. That there was no such organized counterpart within Russia itself, and that the Russian government charged a Berlin bank to intervene in the markets in such a way as to maintain the value of the Rubel, is a clear sign of the underdevelopment of Russian financial intermediation. In a sense, a German private bank assumed functions otherwise associated with a central bank.

^[9] Schulze-Gävernitz, Volkswirtschaftliche Studien, pp. 527-30.

^[10] Einzig, p. 31-38. There were forward markets in Vienna in other major currencies, but these were small and were not quoted in the official publications. (An exception was the 20 French Franc gold piece and the rubel which were quoted forward). Walther Federn, „Das Problem gesetzlicher Aufnahme der Barzahnlungen in Österreich-Ungarn,“ Schmollers Jahrbuch für Gesetzgebung, Verwaltung und Volkswirtschaft 34 (1910), pp. 151- 172, here p. 164.