The objective of this thesis is to explore how Uruguay adhered to the gold standard for 38 years almost without interruption. This requires examining two related aspects. The first regards how the gold standard actually operated in Uruguay. What were the specific factors that allowed the banks to maintain the convertibility of notes? What tools were available to deal with economic volatility? The second aspect relates to the consequences of gold standard adherence. In other words, what were the benefits and the costs of a fixed exchange rate for the Uruguayan economy? Chapter 2 examines the issue of the rules of the game under a multiple currency issuing bank system, focusing on the actions of specific banks. Chapter 3 takes a macro level approach, looking at one of the main sources of external volatility, capital flows, and analyzes how the balance of payments and the money supply adjusted to changes in this variable. Chapter 4 looks more closely at one episode of capital inflows, the leadup to the 1890 crisis (also known as the Baring Crisis), comparing Uruguay to its neighbor, Argentina, which experienced a similar boom and crisis.

The results of this thesis show that, in general terms, gold standard adherence placed important limits on a peripheral country like Uruguay. Over the long run, the rules of the game had to be respected, meaning the money supply had to stay in line with gold reserves. However, some bank may have tried to cushion the effects of external volatility by managing their balance sheets countercyclically, with economy-wide effects. In addition, the fixed exchange rate may have offered certain advantages beyond those commonly highlighted by the literature (ease of trade and access to capital markets on better terms). The gold standard allowed the government to avoid the erosion of fiscal revenues caused by currency depreciation. Strict convertibility forced banks to manage reserves prudently; this in turn may have attracted gold to Uruguay its neighbor, Argentina, that was on inconvertible paper currency.