CEB Working Paper



CEB Working Paper

Price Formation on Clandestine Markets:

The Case of the Paris Gold Market during


Georges Gallais-Hamonno, Thi-Hong-Van Hoang

and Kim Oosterlinck

Because of data scarcity, there are almost no quantitative analyses dealing with

clandestine markets, despite their prime importance during wartime. This paper

exploits a unique database of daily prices of gold coins traded in occupied Paris,

in order to gain insights into price formation on such a market. First, using data

from Switzerland, we show that arbitrage took place, despite the costs and risks

involved, and led to a gradual (but incomplete) convergence of gold prices.

Second, on basis of an event study, we provide evidence that the introduction of

higher penalties for black market activities had no significant impact on prices.

Finally, we analyze the law of one price on this clandestine market. Under this

law, one gram of gold should have a similar value, whatever form it takes

(independently of the coin considered). However, we do find large price

variations for one gram of gold contained in different coins. We attribute this

result to market participants’ taste for specific gold coins and we present our

results in the framework developed by Sargeant and Velde (2002).

Keywords: Paris clandestine gold market; World War II; Swiss arbitrage;

weekday effect; repressions; event studies

JEL Classifications: G1, N2

CEB Working Paper N° 16/048

November 2016

Université Libre de Bruxelles - Solvay Brussels School of Economics and Management

Centre Emile Bernheim

ULB CP114/03 50, avenue F.D. Roosevelt 1050 Brussels BELGIUM

e-mail: Tel.: +32 (0)2/650.48.64 Fax: +32 (0)2/650.41.88


Price Formation on Clandestine Markets: The Case

of the Paris Gold Market during WWII

Georges Gallais-Hamonno a ,

Thi-Hong-Van Hoang b

Kim Oosterlinck c


Because of data scarcity, there are almost no quantitative analyses dealing with clandestine

markets, despite their prime importance during wartime. This paper exploits a unique

database of daily prices of gold coins traded in occupied Paris, in order to gain insights into

price formation on such a market. First, using data from Switzerland, we show that arbitrage

took place, despite the costs and risks involved, and led to a gradual (but incomplete)

convergence of gold prices. Second, on basis of an event study, we provide evidence that the

introduction of higher penalties for black market activities had no significant impact on

prices. Finally, we analyze the law of one price on this clandestine market. Under this law,

one gram of gold should have a similar value, whatever form it takes (independently of the

coin considered). However, we do find large price variations for one gram of gold contained

in different coins. We attribute this result to market participants’ taste for specific gold coins

and we present our results in the framework developed by Sargeant and Velde (2002).

JEL classification: G1, N2

Keywords: Paris clandestine gold market; World War II; Swiss arbitrage; weekday effect;

repressions; event studies



G. Gallais-Hamonno,, University of Orléans, France, b T. H. V.

Hoang, Montpellier Business School and Montpellier Research in Management,

France and K. Oosterlinck (Corresponding author), Université Libre de Bruxelles, SBS-EM,

CEB, 50 M. Roosevelt, CP 114/03, 1050 Brussels, Belgium. Phone: +32 (0)2650-24-40 - 32 (0)2650-41-88



Price Formation on Clandestine Markets: The Case

of the Paris Gold Market during WWII

1. Introduction

Black markets are both fascinating and frustrating to analyze: fascinating because they

are a spontaneous answer to some type of prohibition; frustrating because they are elusive (a

lack of data and archives makes it hard to analyze them rigorously). By definition, black

markets share a common feature: They are prohibited by law. But the extent of prosecution

can vary dramatically. Practices may range from intensive repression to laissez-faire. In the

first case, data are almost impossible to find, whereas in the second, one may question the

extent to which market participants believe they are infringing the law. In occupied France, a

whole range of practices co-existed. The subject of this paper–the clandestine market for gold

in occupied Paris–could be considered as an intermediate case. German archives show that the

army were well aware of the market's existence, tolerated it, and traded on it. Even though the

market was officially forbidden, trading never stopped despite periods of sharp repression.

During the Occupation, the intensity of prosecution of black market activities changed

gradually. Grenard (2012) distinguishes three phases. The first months of the Occupation, i.e.

the second semester of 1940, saw the creation and expansion of black market networks. Black

market operations, which were at first only conducted by a limited number of persons,

gradually became the norm. 1 By the second half of 1941, almost everybody was to some

extent involved in black market activities for food. This forced the French government to

prosecute only the major actors. In the third and last phase, beginning in 1943, the German

forces took a more active stance in prosecuting black marketers. The willingness to rationalize

the exploitation of occupied France and limit resistance movements explains the harsher

approach taken both by the occupying forces and the French collaborationist government.

The case analyzed in this paper, the clandestine market for gold in occupied Paris, is

unique in many respects. Indeed, to our knowledge it is the only black market for which daily

prices were available during the Occupation. The exceptional nature of the data is worth


Food rationing was imposed on September 23, 1940, leading to an increase in black market activities.



stressing since the norm is usually to consider that black markets are “inaccessible to

quantification” (Sanders, 2008, p. 137). This is certainly true for data on black markets for

food or clothes, which are scattered and, at best, provide only an impressionistic view of how

these markets worked. The limited frequency of these data prevents running robust statistical

analysis. In our case, by contrast, daily prices are available for three gold coins (napoleon,

sovereign and double eagle) traded on the Paris black market during the 1941-1948 period.

The lack of reliable data has made it impossible to analyze the price formation process on

clandestine markets. The limited literature on this topic has been mostly concerned with

informational efficiency. For example, Gupta (1981), Booth and Mustafa (1991) and Huett et

al. (2014) show that clandestine markets in foreign currencies are usually efficient. By

contrast, Gallais-Hamonno et al. (2015) find that the Parisian black market for gold during

World War II was inefficient. 2 Even though these analyses shed light on a key characteristic

of price formation on clandestine markets, many questions remain unanswered.

This paper addresses three main points. First, using data from Switzerland, we assess

whether the transaction costs generated by the clandestine character of the gold market were

high enough to prevent international arbitrage. Our results show that arbitrage operations took

place, despite the costs and risks involved, and led to a gradual (but incomplete) convergence

of gold prices. Second, we rely on an event study to determine the impact of legal changes

related to penalties on prices in the black market for gold. Theoretically, tighter repression

should lead market participants to require a higher premium to trade on clandestine markets,

thus triggering a price decline. To test this hypothesis, we examine the impact on the gold

price of three laws affecting the sanctions for black market activities. Our results indicate a

negative price reaction to only one of the laws considered (the strictest). In the last part of the

paper, we analyze the law of one price on the clandestine gold market. Under this law, one

gram of gold should have a similar value, whatever form it takes (independently of the coins

considered). However, our results do show large price variations for one gram of gold

contained in the three considered coins. We attribute this result to market participants’ taste

for specific gold coins and we and we present our results in the framework developed by

Sargeant and Velde (2002).


Recent analyses on gold also focus on its role as a safe haven investment (Baur & McDermott 2010, Beckmann

et al. 2015, Hoang et al. 2015).



The paper is organized as follows. Section 2 presents the Paris black market for gold

during World War II using archives from both the German occupation forces and French

authorities. Section 3 discusses the impact of international arbitrage with Switzerland on the

price of gold in occupied Paris. Section 4 shows how changes in legislation and repression

affected prices on this market. Section 5 considers the law of one price regarding market

segmentation and demand for specific coins. Section 6 concludes.

2. The Clandestine Market for Gold in Occupied Paris

The Paris black market for gold was born from prohibition. In order to finance the war, an

Order in Council (décret-loi) of September 9, 1939, established controls on gold and foreign

currencies. Article 3 of this law focused on gold and stated that: “Any trading and operations

in gold need to be authorized by the Banque de France. Imports and exports of gold are

prohibited unless approved by the Banque de France.” This law also provided that gold could

be sold only to the Banque de France, or to an authorized commercial bank at official prices:

47,608 French francs (FF) per kilo of fine gold, FF 274.49 for a napoleon coin, FF 346.16 for

a sovereign coin and FF 71.13 for one gold dollar in the double eagle coin. 3 These official

prices remained unchanged during the war. Of course they did not reflect the strong demand

for gold and were therefore much lower than the prices on the black market. As a concession

to the public, the law guaranteed the anonymity of sellers providing their gold was sold to the

Banque de France.

Transactions on gold were limited during the Phony War 4 as gold owners were probably

willing to keep their holdings in case they had to flee the country. The speed of the French

defeat took everybody by surprise, leading to a mass exodus in June 1940. After the

Armistice, it took several months for the Parisian population to come back home (Alary,

2010). Ordinary life resumed its course in the fall of 1940, as shown for example by the reopening

of the Paris Bourse in October 1940. This coincided with the imposition of strict

rules. The Coulisse (the Parisian equivalent of the Curb market in New York) was a natural

target for the occupying forces in view of the large number of Jewish brokers actively

involved in this market (Oosterlinck, 2010). As a result, the Coulisse remained closed. During


The American double eagle ($20 gold coin) was priced for only one dollar but its whole price was 20 times the

quoted price, meaning FF 71.13 times 20, or FF 1,422.60 (more details below).


From November 1939 to March 1940 (see Sartre, 1983 & Hoare, 1984).



the winter of 1940, some of the brokers, who were no longer allowed to trade, started

gathering at Place de la Bourse and they began trading gold from the street curb or –

preferably – in cafés. At the beginning of 1941, a form of decentralized market with “face to

face” trading had emerged and was functioning with success in cafés around the Bourse. 5

The market was “open” daily from Monday to Friday and, until April 1941, even

sometimes on Saturdays. Six assets were traded on a regular basis: three gold coins 6 and three

foreign currencies. 7 In a somewhat exceptional fashion for a black market, several sources

provided prices for the assets traded on this market. This paper is based on the huge database

of daily quotes coming from a pamphlet 8 published in 1950 by De Litra & Cie (hereafter, De

Litra), a merchant established just before the war, in 1938, that traded gold and precious

metals. The pamphlet consists of two parts: The first is an analytical history of the price of

gold coins in France from 1900 to 1950; the second provides the daily quotes of the six assets

mentioned above, from February 3, 1941 to January 31, 1948 (just before the opening of a

legal gold market on the Paris Bourse). 9 Unfortunately, the pamphlet neither discusses the

way the firm traded during the German occupation, nor how prices were collected. Figure 1

presents the daily price movements from February 1941 to August 1944 on basis of an index

for each coin, with a value of 100 on the first day data are available (February 3, 1941). 10

Figure 1 shows that the gold price was very volatile during the war. The figure can be divided

into two sub-periods, before and after the invasion of the Zone Libre 11 (free zone) on

November 11, 1942. In the first period, the price of gold coins increased continuously, while

in the second, it declined until July 1943 before going up until the Liberation of Paris on


In some respects, this market is similar to the 19 th century Coulisse, or curb market. The Coulisse, too, was

prohibited but trades took place openly under the columns of the stock exchange and even inside the building

(Pollin, 2007).


FF 20 napoleon, [6.4516 grams with 5.806 grams of fine gold], 20 shilling sovereign, [7.988 grams with 7.322

grams of fine gold], $20 double eagle, [33.437 grams with 30.093 of fine gold]. Vigreux (1947) mentions

numerous trades in Swiss Vrenelis after 1946. The 20-mark gold coins were not traded on the Paris clandestine

market due to strict export ban. According to De Litra (1950, p. 42), a German soldier caught in possession of a

20-mark gold coin outside Germany would have been executed.


The British pound sterling, GBP; the American dollar, USD and the Swiss franc, CHF.


This pamphlet was discovered by one of the authors, Mrs Hoang, at the Bank of France’s archives while

writing her PhD thesis. Unexpectedly, this firm still exists at the same address – and one of the wealthiest streets

– in Paris, on Avenue Victor Hugo, but its website indicates a different business: “Auxiliaire Financier”

(financial auxiliary).


Readers may refer to Hoang (2012) for more information on the official market for gold in Paris from 1948 to

2004 (in French).


Even if the data are available for the period until February 1948, we focus only on the Occupation period,

which, for Paris, ended on August 25, 1944.


Following the armistice signed on June 22, 1940, France was partitioned. The so-called Zone Libre (free zone)

was administered by the French collaborationist government (the Vichy government). In November 1942,

following the Allied landing in North Africa, German troops invaded the free zone.



August 25, 1944. This increase might be linked to the reassessment of the outcome of the war.

Following the invasion of Sicily in July 1943, market participants might have realized that

gold would be valuable if the fighting came closer to Paris. This explanation would be

consistent with the continuous rise in the gold price until the Liberation.

Figure 1: Daily gold price index in the Paris clandestine gold market from 1941 to 1944

The accuracy of the price series is confirmed by cross-checking the prices from De Litra

with those collected from four other sources: (1) The Banque de France, in which three

different departments gathered data, (2) a note written by a German officer, (3) the diary of a

French businessman (Pierre Nicolle, 1947) and (4) the chapter on the exchange market during

the Second World War written by Professor Vigreux (1946) for the Revue d’Economie

Politique. Unfortunately, none of these sources describes the data collection methodology, but

the correlation coefficients between De Litra’s data and these sources are very high, over

0.98. 12 We use De Litra (1950) because it is the only source that provides complete daily data

for the whole period. In the other sources, either the periods are incomplete or data are

available on a monthly frequency only.

According to De Litra (1950, p. 41), in 1940 the Germans tolerated and participated in the

market in order to acquire foreign currencies and gold. In this way, German participants could


Details of these four sources are available upon request.



take advantage of the overvaluation of the Reichsmark 13 , and were even considered the

biggest buyers of bars and ingots (De Litra 1950, p. 43). The occupation forces were in fact

monitoring the market in such a way that they were able to analyze price changes for various

coins, as shown in the German note. 14 This remained the case even after 1943, when the

occupation forces began to take a more active stance to limit black markets. Had the German

military authority governing Paris wanted to stop the market, it could easily have done so.

One or several raids around the stock exchange would have been sufficient. But the occupiers

preferred to tolerate a market which could serve their purposes. Following Sanders (2001), the

Germans needed an active black market for goods such as gold, silver and platinum.

An official document, “La France au pillage” (1946, “Pillage” hereafter), 15 provides

additional evidence of German behavior on the black market for gold. During the Occupation,

two institutions dealt with gold purchases. The first was an office known by its acronym

ROGES 16 which bought a total of 1,587.780 kg of gold on the black market in 1941 and 1942

(Pillage, p. 96). In 1943, the whole German system of black market purchases was

reorganized to stop uncontrolled competition between German departments. From then on, the

representative in Paris of Berliner Handelsgesellschaft Bank (BHG) became responsible for

purchasing gold and foreign currencies.


In May 1940, the Germanq imposed an exchange rate of FF 20 for one Reichsmark, an overvaluation of at

least 50%.


This is a crucial document, for our analysis at least, dated April 1944 and published by the Deutsches Institut

fur Wirtschaftsforschung – Abteilung Paris. The translated title reads “Political determinants of the gold price at

the black market in Paris in 1943” (Politische Bestimmungsgründ des Goldpreises am schwarzen Markt in Paris

in Jahre 1943). Archive reference: AN AJ40/831/3.


“The Plundering of France.” In 1946, this document was filed under “Restricted reading.” To our knowledge,

it is currently available in two places only, the archives of the French finance ministry and of the Banque de



This office was in charge of purchasing precious metals for the war industry, especially platinum, on the

clandestine market.



Table 1: Purchases by BHG on the black market for gold (July 1943 – August 1944)

Coins Costs Coins per

(FF million * ) working day **

Bars or scrap coins (grams) 42,964 16


Eagles 417,156 335 1,414

Sovereigns 50,346 188 171

Napoleons 172,532 582 585

Miscellaneous 6,986 25 24

Total coins 647,020 1,130

Total gold 1,146

Foreign currencies 806

Assets in neutral countries 154


At official prices 331


Source: Pillage, 1946, page 114. * : figures are rounded to millions. ** : column 2 divided by 295 working

days (following De Litra, 1950).

Table 1 details the purchases made by BHG from July 1943 to August 1944, which provide

many insights. First, the size of BHG’s operations was impressive. From July 1943 to August

1944, it spent respectively FF 1,147,000,000, FF 806,000,000 and FF 153,000,000 on gold,

foreign currencies and foreign assets (Pillage, p. 114, rounded to the nearest million). BHG

bought more than 647,000 coins for an amount equivalent to a little more than one billion

francs. The daily amount of purchases was equal to 1,414 American eagles and to 585 French

napoleons if one considers 295 working days per year. On average, purchases to the tune of

2,000 coins were made per working day, certainly not enough to “make” the quote but

sufficient to sustain it. All purchases were made with cash (Pillage, p. 114). The double eagle

represented 65% of total purchased coins, in contrast to 27% for the napoleon. These figures

thus confirm the German preference, mentioned by several sources, for double eagles (De

Litra, 1950; German note, 1944). 17

According to the German note, the French involved in the clandestine market for gold

were active both as buyers and as sellers. As buyers, they would invest some of their savings

in real assets to have “small” items of great value such as gold. This is consistent with


This preference is also confirmed by the analysis presented in Section 4.



previous research documenting the demand for small portable goods in occupied Paris

(Oosterlinck, 2016). 18 Jewelers were also buyers of the precious metals required for their trade

on the black market. As sellers, bourgeois or retirees would need money simply in order to

live, because inflation was eroding their purchasing power. 19 In any case, the amounts held by

the French population were substantial. Just after the war, the quantity of gold hoarded by

French people was estimated at 3,500 tons, twice the official reserve of the Banque de France

at that time. 20 By contrast, this figure was estimated at 2,320 tons in 1939. The sharp increase

in gold hoarding reflects the high demand for gold during the war.

3. International Arbitrage in a Clandestine Market

Part of the supply of gold came from speculators in France who were exploiting the price

differential with Belgium and Switzerland to conduct international arbitrage activities.

According to the German note, the supply of foreign gold was irregular and often influenced

by political and administrative considerations. For example, stricter border controls or

limitations in terms of transportation could hinder the arrival of gold. The German note also

stressed the role played by foreigners, who could also be active on the French market 21 .

Switzerland was the principal gold provider for France (German note, 1944; De Litra, 1950;

Vigreux, 1947). The Swiss authorities estimated that 200 tons of bullion were sold in

Switzerland from 1941 to 1946, with 80% going to France. 22

In the summer of 1941, Switzerland began to limit gold transactions (De Litra, 1950, p.

44). In August 1941, the Swiss government restricted the quantity of gold sold to private

buyers. The Swiss national bank (Banque Nationale Suisse, BNS) sold gold bars only to

businesses (jewelers for example) at a fixed price of CHF 4,970 per kilo. However, there was

no official measure prohibiting gold imports or exports. The BNS simply asked commercial

banks to sell gold only to Swiss residents. Despite these requests, the clandestine export of

gold surged, prompting the Swiss government to officially regulate the market. A law passed

on December 7, 1942 provided that: (1) no gold transactions could be carried out without


It is worth stressing that buying real goods to conceal illegal profits was common “long before the Liberation”

(Mouré & Grenard, 2008, p. 978).


39% per year from 1941 to 1948, according to the French national institute for statistics, Insee.


As mentioned in a press article: "Le bas de laine français ? Deux mille milliards" in Ordre de Paris,

September 16, 1947.


This was the case, for example, of Italians during the summer of 1943.


"Le bas de laine français ? Deux mille milliards" in Ordre de Paris, September 16, 1947.



authorization; (2) gold imports and exports were subject to written authorization; and (3) all

gold transactions were subject to an 8% tax. In fact, the BNS wanted to stop selling gold coins

in order to limit speculation. Thus, from December 7, 1942, gold could be sold or bought only

through an approved intermediary, who was subject to a 2% tax on turnover (De Litra 1950,

p. 44). Moreover, the BNS imposed an upper price limit for all transactions: CHF 4,970 per

kilo of fine gold, CHF 30.5 per napoleon, CHF 38.45 per sovereign, CHF 7.9 per dollar in the

double eagle coin. 23 Quite logically, this law led to the emergence of a black market for gold

in Switzerland.

The Interim Report of the Independent Commission of Experts Switzerland – Second

World War (2002), analyzed the gold transactions conducted by the BNS during WWII. The

report contains a graph showing price movements for three gold coins (sovereign, napoleon,

and Swiss Vreneli) traded by Swiss banks from 1940 to 1942. Prices of napoleons varied

between CHF 25 and CHF 35 while those of sovereigns ranged from CHF 35 to CHF 50. The

price differential reflected the difference in the weight of fine gold contained in these two

coins (5.806 vs. 7.322 grams, respectively). The original data for this graph were published in

a report of Société des Banques Suisses. With these data, Figure 2 presents the monthly

average prices of these three gold coins, compared with the corresponding values for Paris.

For the sake of comparison, the Parisian averages are converted into Swiss francs using the

exchange rate prevailing on the Paris clandestine market at each corresponding date (from De

Litra, 1950).


Source: Note B-115-3 on December 10 and 11, 1942, of the Direction Générale des Services Etrangers of the

Banque de France, available in the Bank's archives.



Figure 2: Comparison of gold prices between Switzerland and Paris from February 1941

to October 1942 (in CHF, monthly data)

Note: The values used in this graph are monthly average prices in CHF. Swiss data are from report No 3 of the

“Société des Banques Suisses” in 1942. Paris data are from De Litra (1950) and converted into CHF using the

exchange rate on the Paris clandestine market, available in De Litra (1950).

Figure 2 shows that prices in France were higher than in Switzerland (with a gap of CHF

10 on average for napoleons and sovereigns, and of CHF 2 on average for eagles). In order to

compare the difference of gold prices between Switzerland and Paris, Figure 3 presents the

price differential for one gram of fine gold for each coin from 1941 to 1942. The average

differential for the whole period is between 25.17% for the sovereign and 28.94% for the

napoleon. But is this price difference between France and Switzerland really large? For

comparative purposes, we rely on the analysis of Bignon (2009), 24 who computed the price

range (defined as the highest price divided by the lowest price) for black markets in post-war

Germany. His data cover 120 districts in Bavaria with a distance ranging from 8.5 km to 488

km. The price ranges computed by Bignon (2009) are much higher than the ones reported in

our case. The lowest range (2.8) is observed for cigarettes in 1948, compared with a high

value of 1.45 for the napoleon in February 1941 25 . Three elements may account for the

difference between the two cases. First, Bignon (2009) compared black markets in different

districts whereas we compare a black market to a free one. Second, the number of venues

observed by Bignon (2009) is much larger (120 districts) than ours (two cities, Paris and

Geneva), creating a higher likelihood that prices would differ markedly for at least a pair of

districts. Third, the goods considered differ in nature, which may explain the difference in


As mentioned previously, there are very few studies analyzing black markets quantitatively. Bignon (2009) is

probably the closest to our analysis.


In the framework used Figure 3, this is equivalent respectively to 280% and 45%.



price dispersion. This comparison point suggests that the difference was not so high if other

goods are considered.

Figure 3: Price differential between Paris and Switzerland for 1 gram of fine gold

(monthly data)

Notes: This graph shows the price difference between Paris and Switzerland in proportion to the price of one

gram of gold in Switzerland. The formula used is: (the price of one gram fine gold in the coin in Paris in CHF –

the price of one gram of fine gold in the coin in Switzerland in CHF) / the price of one gram of fine gold in the

coin in Switzerland in CHF.

A closer look at Figure 3 shows that the price difference was the highest, more than 45% in

February 1941. This differential decreased dramatically in subsequent months, to around 20%

in October 1941. In just a few months, arbitrage operations led to a significant convergence of

prices between the two markets, even though the Parisian market was clandestine. In 1942

however, the convergence stopped and the price differential became characterized by

substantial volatility, which we attribute to the policy changes regarding gold trade in

Switzerland. We conjecture that the uncertainty about the future availability of gold had an

impact on the dynamics of gold arbitrage and thus on the price differential between the two

markets. The upshot at the end of 1942 seems to reflect expected difficulties regarding future

arbitrage operations.



A document in the Banque de France archives 26 contains detailed weekly prices of gold

coins traded in Switzerland during the second part of 1942 (from June 1 to December 7,

1942). This dataset, with a precise mention of the day instead of monthly averages, allows us

to calculate precisely the profits from the Swiss arbitrage. For that, we first assume that gold

coins bought in Switzerland were sold two days later in Paris. However, to take into account

the uncertainty over smuggling, and as a robustness check, we also computed arbitrage profits

according to whether the trip took three, four or five days. Furthermore, two scenarios were

considered, one in which the French speculator already had CHF at the beginning of his/her

operation (Panel A) and one in which he/she first needed to convert French francs into Swiss

francs (Panel B). The results are reported in Table 2.

Table 2: Profits from the arbitrage with Switzerland (with weekly data from

Switzerland, June 1 to December 7, 1942)

A. In CHF Napoleon Sovereign D-eagle

B. In FF


Napoleon Sovereign


2 days 2 days

Average 22.80% 15.65% 21.92% Average 22.53% 15.35% 21.62%

SD 7.78% 6.92% 8.75% SD 9.25% 7.42% 9.47%

3 days 3 days

Average 21.91% 14.77% 21.38% Average 23.71% 16.41% 23.17%

SD 6.60% 6.38% 8.21% SD 10.91% 9.63% 11.88%

4 days 4 days

Average 21.70% 14.50% 22.21% Average 23.74% 16.39% 24.18%

SD 6.36% 5.18% 8.33% SD 11.60% 10.18% 12.16%

5 days 5 days

Average 21.63% 14.43% 22.11% Average 23.78% 16.42% 24.20%

SD 6.54% 5.30% 8.44% SD 11.63% 10.18% 12.16%

In general, the results do not change according to the number of days considered.

However, they change substantially according to the coins. Sovereigns yielded the lowest

returns (between 14% and 16%) while napoleons and double eagles were in a higher range

(21% to 24%). The higher profit margins for the latter two coins probably reflected German

and French interest in the double eagle and the napoleon, respectively. The returns from these

arbitrage operations were huge considering that the profit was generated in only a few days

during a period relatively favorable for smugglers. Indeed it was only at the end of 1942 that


Source: Document n° 1377200101/13 in the Banque de France archives.



Switzerland began to impose stricter border controls with France (Alary, 2001); and as

mentioned previously, gold was still easy to buy in Switzerland prior to December 7, 1942.

Our results confirm the profitability of arbitrage with Switzerland. This profitability may in

turn account for the size of arbitrage operations with Switzerland indicated in the German

note and the numerous references to these in the contemporaneous press. 27 Of course, our

results do not take into account the costs and risks associated with this illegal activity.

Evidence from a later period would tend to indicate that the financial costs of crossing the

border were small compared to the coins’ value. 28 The main cost was the risk of getting

caught, seeing the coins confiscated and, of course, being jailed.

Our analysis indicates that on Swiss arbitrage operations were very profitable. Despite this

active arbitrage, however, there was no full price convergence. According to the German

note, a substantial part of the smuggling activities took place on weekends when border

controls were few and far between. As a result, the first days of the week were characterized

by a large inflow of gold coins, leading automatically to a price decrease. To test this

assertion, the returns on gold coins are compared as a function of the days of the week. To

better identify this effect, two different periods are used: the whole period (1941-1944), and a

sub-period (only 1941 and 1942) that precedes the law of December 7, 1942. The results are

presented in Table 3, Panel A for the whole period (1941-1944) and Panel B for the subperiod.

The annualized rates of return on all assets were much higher in 1941-1942 than during the

whole period (about 55% vs. 30%). Regarding the day-of-the week effect, we find no

significant difference for the whole period (1941-1944), except for the Wednesday-Thursday

comparison of the double eagle, for which the return variances are significantly different. For

the 1941-1942 period, the rates of return for the first days of the week (Mondays, Tuesdays,

and Wednesdays) tend to be lower than the rates at the end of the week (Thursdays and

Fridays) in the 1941-1942 period (about 54% vs. 58%). This would support the hypothesis

whereby most of the coins that came from the borders during the weekends were sold on the

first days of the following week. However, this difference is not statistically different from


Details of these press articles are available from the authors upon request.


Following a document found in the archives of the Banque de France, No. 1467200501/33, a memo of the

Direction Générale des Services Etrangers on August 8, 1958, the “passage cost” for a clandestine operation

was about $3.3 per kilo.



zero at the conventional level of confidence. It is therefore impossible to give full credence to

the remark in the German note. 29

Table 3: Weekday effect on the Paris clandestine market for gold

1941-1944 1941-1942

Napoleon Sovereign D-eagle Napoleon Sovereign D eagle



Return 29.53% 29.81% 29.27% 54.69% 52.74% 52.41%

SD 40.33% 41.03% 45.78% 44.53% 45.64% 50.13%



Return 29.79% 29.17% 28.60% 54.63% 51.56% 51.94%

SD 40.78% 38.64% 44.31% 43.05% 40.76% 46.02%



Return 29.35% 28.04% 28.63% 54.05% 51.01% 52.89%

SD 37.44% 36.22% 42.15% 35.45% 34.65% 38.99%



Return 31.37% 30.10% 31.08% 59.37% 56.22% 59.93%

SD 42.35% 40.52% 49.62% 40.58% 40.57% 46.35%



Return 31.17% 29.80% 29.63% 57.25% 54.28% 55.71%

SD 39.94% 39.81% 46.04% 39.34% 40.81% 44.43%

Note: Mean and s.d. (standard deviation) are in annualized values, estimated by multiplying the weekly values by

52 and 52 , respectively. The t-test for comparison of means, F-test for comparison of variances, and

Kolmogorov-Smirnov for comparison of distributions of returns between each couple of days of the week are also

performed. Their results are analyzed in the text.

By contrast, the comparison tests (t-test, F-test and Kolmogoro-Smirnov) show that the

return variances differed significantly according to the days of the week: Between Mondays

and Wednesdays for the three coins in both periods; between Tuesdays and Wednesdays for

the napoleon; and between Wednesdays and Thursdays for the double eagle (only in the 1941-

1942 period for the last two cases). Wednesdays stand out for their low volatility, especially

for 1941-1942. This observation, together with the fact that Wednesday returns were lower

than those on the other days, suggests that uncertainty about the gold supply was lowest at the

middle of the week, after the supposed high beginning-of-week level. This may be attributed

to the fact that market participants on Wednesdays would have known about the smugglers'



This weekday effect also leads to the rejection of informational efficiency of the Paris clandestine gold market

and confirms the findings of Gallais-Hamonno et al. (2015).



4. Black Market Laws and their Impact on Gold Prices

The previous elements give the impression that the market for gold was hardly a black

market and that trading on the clandestine market entailed no specific risk. This was certainly

the view of the Germans at the beginning of the Occupation. According to the German note,

the market was well organized and the business was safe. However, this was not always the

case for French investors. Delarue (1968, p. 41) reported the activities of French

collaborationists who exploited the illegal nature of the gold trade to trick potential sellers and

confiscate their gold. According to the author, these operations led to the confiscation of four

tons of gold during the war. Even if the German authorities tolerated this activity, the French

government passed a series of law increasing the sanctions black market trading. Prosecutions

of wrongdoers also increased over time. Did these changes affect the black market for gold?

To answer this question, we first present the legal framework regarding black markets in

general before testing whether legal changes had an impact on gold prices.

During the first part of the war, the occupying forces played a crucial role in the

development of black markets. Major suppliers to these markets were in fact eager to sell to

Germans, who had both the means to pay and the ability to provide protection if needed

(Grenard, 2012, p. 42). German demand was such that a special department was created to

transfer goods bought by soldiers to their families (Grenard, 2012, p. 47). In the fall of 1940,

the German forces set up several agencies to buy goods in France. The best known of these,

the Bureau Otto, 30 quickly developed a network to find goods of interest for Germans. By the

beginning of 1941, the Bureau Otto had more than 400 employees and worked intensively

with French intermediaries.

The increasing difficulties faced by the French population to buy food led to harsh

criticism of the Vichy regime. This forced the regime to act, and in the spring-summer 1941,

repression was stepped up. Judges, considered too lenient by the regime, were ordered to be

more severe (Grenard, 2012, p. 104). On March 21, 1941, a new court was created to judge

black market activities. A few months later, on September 7, 1941, it was replaced by a more

powerful court, the Tribunal d’Etat. According to Grenard (2012, p. 115), the judgments


From the nickname of its founder, Hermann Brandl.



handed down by this court were extremely harsh, with life imprisonment being a common

sentence for the main black marketers.

By the end of 1941, the war had driven the majority of French men and women to become

involved on black markets. It is safe to say that almost the whole population was in fact acting

outside the bounds of legality. This forced the government to take a more tolerant stance on

petty offenders, and minor deals were described as part of the “grey market”, defined under a

new law passed on March 15, 1942, which made a clear distinction between grey and black

markets. Illegal activities conducted to survive were considered as different to those carried

out mainly for profit. For black marketers operating on a large scale, the new law meant

potentially higher prison sentences. Following the passage of this law, prosecutions were

targeted on the main actors, leaving minor offenders more or less alone. According to Grenard

(2012, p. 191), the state of repression influenced prices, with actors requiring a premium

when the risk was the highest.

During the first years of the Occupation, therefore, the German forces had an ambiguous

position on black markets: although officially forbidden, they were tolerated in practice

because they could be used to acquire goods. This position shifted at the end of 1942, when a

more rational policy to exploit occupied France was put in place (Grenard, 2012, p. 231). The

plundering policies engineered by Goering were replaced by planned exploitation arranged by

Albert Speer. From then on, black markets were viewed as playing against German victory. 31

German activities on the market were dramatically reduced and some soldiers were even

court-martialed for their involvement. From 1943 on, only select groups of Germans could

still buy in total impunity. The French collaborationist government followed the impetus

given by the Germans and increased prosecution even further. Direct action by the Gestapo

became increasingly frequent. During the first half of 1943, the Devisenschutzkommando 32

arrested a series of black market traders (Sanders, 2001, p. 271). A new law passed on June 8,

1943, tightened even further the potential sentences faced by black marketers. The Milice

française 33 also entered the game and, to impress the general public, made a series of highly


On the exploitation of occupied France, see Occhino et al. (2007 and 2008).


The Foreign Exchange Protection Commando, which monitored financial transactions in several occupied



The Milice française was a French paramilitary organization created by the Vichy regime to fight against

resistance movements.



publicized arrests. In parallel, resistance movements started legitimizing black markets,

presenting their actions as a way to resist the invaders.

Thus over the course of the war, the French government passed several laws to increase the

repression of black market activities. These statutes targeted black markets in general, not the

market for gold in particular. In view of the position of the German authorities, market

participants may have expected that these laws would not really be implemented on the

clandestine market for gold. If participants believed the police would turn a blind eye to their

activities, one would not expect any market reaction when these laws were passed. To test

whether the changes in the legal framework for clandestine markets had an impact on the gold

market, we rely on a so-called event study focusing on the market reaction following the

adoption of the three main laws:

- September 7, 1941: Black market activities will be judged by a Tribunal d’Etat.

- March 15, 1942: Prosecution focuses on the main actors, leaving minor offenders


- June 8, 1943: The potential sentences faced by black marketers are increased.

These three dates will be considered as the event dates. The event window will cover the

period [-10, 0, 10], thus including 10 days before the event date and 10 days afterwards. The

estimation window is 140 days before the window for the first event date (as our sample

period begins only on February 3, 1941). As for the second date, the estimation window is

252 days before the event window, and it is 247 days for the third event date. This choice is

consistent with MacKinlay (1997), who suggests using about 250 trading days prior to the

event window.



Event date


Estimation window

Event window

We use the constant mean (or mean-adjusted) return model in which abnormal returns in

the event window are calculated by the difference between the observed and expected rate of

return. This latter is the average rate of returns over the estimation window. In the absence of

any daily market index for that period, it is impossible to use a market model. This limitation



is unlikely to bias our results. As shown by Brown and Warner (1985), the mean-adjusted

return model provides similar results to those of the market model in most cases. To test the

significance of the abnormal returns, we use the t-student test with the null hypothesis: “There

is no abnormal return within the event window.” The technical aspects of these tests are

presented in Appendix 1, and Table 4 provides the results.

Table 4: Descriptive statistics of the abnormal returns and their significance

Law of September 7, 1941 Law of March 15, 1942 Law of June 8, 1943


Mean 0.0041 0.0006 -0.0089

SD 0.0119 0.0092 0.0184

t-statistic 1.5782 0.3113 -2.2200 **


Mean 0.0045 -0.0003 -0.0062

SD 0.0134 0.0096 0.0182

t-statistic 1.5437 -0.1268 -1.5678


Mean 0.0024 -0.0005 -0.0100

SD 0.0126 0.0085 0.0181

t-statistic 0.8843 -0.2490 -2.5330 **

Note: This table presents the mean, standard deviation (SD) and t-statistic of the abnormal returns of the

three gold coins in the event window. ** means that the average value of the abnormal returns is

significantly different from 0 at the 5% level of confidence. All the calculations are presented in

Appendix 1.

Table 4 shows that the two first laws did not have any significant impact on gold prices.

Apparently, until 1943, market participants did not believe that the laws would affect them.

This is consistent with the view that at the beginning of the Occupation, the clandestine gold

market functioned as a tolerated market. This also suggests that traders on the gold market

waited to see how the laws would be enforced and thus did not react to at first. Since the laws

were applied to black markets in general, these results may suggest that the clandestine gold

market functioned differently from other clandestine markets. According to the German note,

price changes on the gold market had a direct influence on prices of other goods (consumer

goods but also securities) traded on black markets. This may be explained by the fact that gold

could be used to buy other assets or goods, but the reverse was not true. 34


See “La France au pillage,” 1946.



The results are different, however, for the June 8, 1943 law, which had a negative and

significant impact on the prices of napoleon and double eagle coins at the 5% level of

confidence. 35 Furthermore, the fact that both the double eagle and the napoleon saw

abnormally sharp price decreases suggests that German participants (preferring the double

eagle) as well as their French counterparts (preferring the napoleon) reacted to the law, if we

follow the distinction made by Nicolle (1947) and De Litra (1950). This observation is thus in

line with expectations. This result also testifies to the will of the German authorities to also

prosecute German participants on this market, who felt that that infringing the law could have

serious consequences from then on. As pointed out by Sanders (2008), deals in gold were

illegal even by German standards. As for French investors, the June 1943 law was the most

severe of the three, and the increasing involvement of the Milice in the repression did not go

unnoticed. 36

Legislation by itself may also have a limited impact if enforcement is minimal.

Unfortunately, it is impossible to draw a precise picture of the prosecutions brought against

black marketers. However, by examining the restricted files held at the French national

archives, one may gain some insights into the repression of the illicit trade in gold. In general,

it seems that there was a clear risk of prosecution. Appendix 2 details the number of penal

cases to be found in the French national archives related to clandestine trading in gold and

foreign currencies. 37 In the entire period for which we have data (1939-1951), the number of

cases related to gold (352) was much higher than those concerning foreign currencies (191).

Even though the sample size is relatively small, the change in the number of case files is in

line with observations made by contemporaneous actors. Indeed, both Vigreux (1947) and De

Litra (1950) indicate an increase in clandestine gold trades after the Phony War in 1940.

Bodin (1946) mentioned that the French police became more active in the hunt against gold

smugglers after the Liberation of Paris in August 1944. He attributed the zeal of the French

police to a change in the nature of the end-beneficiary of the seized gold. Before the


The absence of reaction for the sovereign may be due to its poor liquidity (the other two coins being the most

liquid. There was indeed high demand from the French for the napoleon and from the Germans for double

eagles, as shown in section 5).


The focus of this paper is the Occupation period but it is worth stressing that after the Liberation of Paris in

August 1944, several decrees were passed regarding gold trade (see De Litra, 1950 and Hoang, 2011 for details

on these).


ANF, BB/18/7080-BB/18/7107.



Liberation of Paris, the requisitioned gold went to the German authorities, while afterwards it

ended up in the coffers of the French government.

These restricted files also provide anecdotal evidence on the nature of trading and on the

way smugglers or black marketers were treated when caught. The size of the trades varied

greatly. In some instances, the amounts involved were extremely small, with the illegal sale of

a single gold coin leading to an arrest, 38 while in others, hundreds of coins were seized. 39 In

most cases, the coins were either confiscated 40 and/or a fine was levied. In some instances,

offenders were jailed without parole. 41 Fraud seems to have been ubiquitous, and several files

mention fake gold ingots. For example, on June 19, 1944, three fake ingots were seized in

Paris, with the buyer being prosecuted for illicit gold trading and the seller for swindling. 42 In

other cases, when the deal was about to be concluded, buyers pretended to act in the name of

the occupation forces and seized gold. 43 In many cases, the arrests of people willing to take

advantage of the price differences between Belgium or Switzerland and France were made

near the borders. For example, in February 1941, an employee of the French national rail

company, SNCF, was arrested at the Belgian border in possession of USD 3,000 and was

fined FF 213,396. 44 Smuggling from Switzerland or Belgium lasted well after the war, and

some criminal cases were still being brought at the beginning of the 1950s. Overall, Appendix

2 shows that there was a real risk in trading gold clandestinely.

5. The Law of One Price and Coin Preferences

Due to the lack of data, few papers have attempted to make the link between prices on

black markets and the law of one price. Bignon (2009) is an exception, with an analysis using

data on several commodities in different German cities just after WWII. His results show that

cigarettes were more liquid than other goods, hence their success as money during the war.

Bignon (2009) reported price differences across districts but did not report large differences


For example in Poitiers on October 12, 1944, one person sold one 10-franc gold coin and was prosecuted

(source: ANF, BB/18/7084- 6-BL-219). During the Occupation, the same was also true. For example, on

October 28, 1943, M sold five inherited gold coins to G. The coins were seized and M and G each had to pay a

FF 1,000 penalty (source: ANF, BB/18/7084- 6-BL-144).


ANF, BB/18/7082 6-BL 220. For instance, 180 coins (in ANF, BB/18/7084-6BL220) or 199 napoleons (in

ANF, BB/18/7085-6BL276).


A decree of October 7, 1944, specified that the seizure of the coins was compulsory.


ANF, BB/18/7084- 6-BL 143.


ANF, BB/18/7084 6-BL 178. In ANF, 7084-6BL164: the ingot was in copper.


ANF, BB/18/7084 6-BL 220 or ANF, 6BL 187.


ANF, BB/18/7082 5-BL 92.



within them. (Price differences may be due to transaction costs between the districts.) In our

case, and similar to the analysis of Sargeant and Velde (2002), we analyze whether market

participants made a distinction between the different gold coins. If these participants were

indifferent to the coin itself, then the value of one gram of fine gold should be similar across

all coins and thus the law of one price would hold in the Paris clandestine gold market during

WWII. Our results show that this was not the case. Figure 4 depicts the ratio between the

price of one gram of fine gold in a napoleon coin over the price for the same quantity of gold

contained in a double eagle coin. 45 If fine gold was viewed as equivalent in all gold coins, the

ratio should be equal to 100%. But as shown in Figure 4, the ratio varies substantially from

this value over 1941-1944.

Figure 4: The ratio of one gram of fine gold in a napoleon over a gram in a double eagle, 1941-


From February 1941 to February 1943, the double eagle traded systematically at a

premium to the napoleon since the ratio was lower than 100%, with a differential reaching

10% on some dates. The highest differential (about 20%), reached on November 16, 1942,

may reflect large changes in demand for specific coins linked to the invasion of the Zone

Libre by German troops a few days earlier, in reaction to the Anglo-American invasion of

French North Africa. One may conjecture that the Zone Libre invasion had a direct impact on

supply and demand for clandestine gold. Overall, this premium of the double eagle over the


We also analyzed the ratio between the napoleon and the sovereign. The price of one gram of fine gold in a

napoleon was systematically higher than that of the sovereign most of the time. This shows that demand for

sovereigns was lower than that for napoleons or double eagle coins. More information about this analysis is

available upon request.



napoleon suggests that demand for the double eagle was higher than for the napoleon from

February 1941 to February 1943, or alternatively the supply of napoleon was higher, or both.

Making the distinction between supply and demand effects is of interest because several

sources linked the demand for certain coins to certain specific groups of market participants.

Both Nicolle (1947) and De Litra (1950) mentioned the interest shown by Germans in the

U.S. double eagle. Nicolle (1947) further suggested that the French population preferred

napoleons. If one considers the period from February 1941 to February 1943, the premium for

the double eagle could reflect either an increase in demand from German participants (if

supply remained constant) or an increase in the supply of napoleons (if demand remained

constant). There are no precise figures on the relative changes in the numbers of coins being

offered for sale. Nevertheless, the number of coins seized by the authorities may serve as a

proxy for the relative proportion of the different coins being traded. Table 5 gives the exact

number of coins seized by the German occupation forces in 1941 and 1942.

Table 5: Number and nature of gold coins seized between 1941 and 1942

March 1, 1941 September 1, 1941 January 1, 1942 July 1, 1942



August 31, 1941

to December 31,

1941 to June 30, 1942

to December 31,


Gold (grams) 29,424 21,109 14,638 13,149 78,320


Napoleons 80,710 169,331 166,327 249,357 665,725

Vrenelis 27,220 56,860 109,444 35,580 229,104

Eagles 48,665 45,163 54,791 51,731 200,350

Sovereigns 5,050 9,974 66,189 6,910 88,123

Miscellaneous 13,381 23,745 41,515 19,850 98,491

Goldsmarks (RM 20) 480 500 170 860 2,010

Source: “Pillage,” page 103. RM = Reich mark.

Figures from Table 5 clearly indicate that whereas the number of eagles seized was more

or less constant over the period, the number of napoleons was multiplied by three between

March 1941 and December 1942. An increase in number of coins concomitant with a price

decline could be interpreted as a sign that the supply of napoleons on the market had surged.

In this case, the relative change observed at the beginning of our sample could reflect massive

sales of napoleons by French people in need of cash to pay for food or other vital products.

Unfortunately, there is no reliable data for the remainder of the period, so it is impossible to

firmly establish why the napoleon became relatively favored as the war progressed. Indeed,



between February and July 1943, the napoleon overtook the double eagle. This increase in

demand for the French coin coincided with a sharp decline on the equity market (Oosterlinck,

2010). The starting point of this decline may be linked to a series of laws passed in February

1943, which forced the registration of securities and capped the daily price increases for any

security. As a result, investing in securities became less attractive, and participants may have

decided to invest in gold instead. In this case, higher demand for the napoleon would be due

to the rebalancing of portfolios following the new legislation. By July 1943 and until the

Liberation of Paris in August 1944, the double eagle traded again at a premium, possibly

reflecting increased demand from German actors anticipating they would have to flee the

country soon.

No archival evidence explains why the Germans would favor this coin over the British

sovereign or the French napoleon. One way to look at this issue is to put it into perspective

with the work of Sargeant and Velde (2002), who analyze the chronic shortage of small

denomination coins that persisted until the middle of the 19 th century. They explicitly take

into account the fact that supply or demand for money should be differentiated by

denomination. In their model, the rate of return of small coins is dominated by that of large

coins during shortages of the former (Sargeant and Velde, 2002, p. 9). For these periods,

small denominations render more liquidity services than large coins. The liquidity advantage

of small coins is exactly offset by the return differential between small and large coins.

Another way to present the difference in demand is to acknowledge that small coins can

always be used to buy expensive items, whereas the reverse is true only sometimes.

Thus, in a Sargeant and Velde (2002) setting, the demand should always be higher for the

smallest coins, which in our case would be the napoleon. How can we therefore account for

the preference for the double eagle? This may be explained by the fact that money can be

valued as a means of exchange but also as a store of value. Indeed the model developed by

Sargeant and Velde (2002) analyses the difference in demand for small and large coins mostly

by looking at the value of money as a means of exchange. One could thus argue that German

buyers were not primarily interested in gold to purchase goods directly but considered it more

as a store of value. In this case, two reasons may explain their preference. First, one could

argue that larger coins could have been perceived as more interesting because it is easier to

carry one double eagle than five napoleons. This would be consistent with the observation that

Germans were also the largest buyers of bars and ingots (De Litra, 1950, p. 43). Second, in



the same vein but with a slightly different assumption, if French people valued napoleons

more because of their liquidity (the small coin effect), then if Germans were indifferent to the

liquidity issue, it seems only logical that they would have preferred the less liquid coins to

avoid paying a liquidity premium.

It could also be argued that psychology played a role in the coins’ valuation. Germans may

have preferred U.S. coins either because they associated French coins with a dominated and

declining economy or because they believed that the double eagle would be easier to

exchange abroad should Germany lose the war. Likewise, French buyers’ preference for

napoleons could be attributed to their familiarity with this coin, which had been used as a

currency when France was under its last gold standard between 1803 and 1914 (Hoang,

2011). They may also have expected that napoleons would have been easier to use as means

of exchange should they have to pay smugglers to cross the border with Spain or Switzerland.

These suggestions are of course only conjectures and none of these reasons need to be

mutually exclusive.

6. Conclusion

This paper describes and analyzes the clandestine market in gold in occupied Paris

during World War II. We first detail how the market worked. We then exploit a unique

database of daily prices of gold coins traded in occupied Paris to gain insights into price

formation on such a market. Indeed, little is known about the working of clandestine markets

despite their prime importance in wartime. The bulk of the quantitative literature has focused

on the informational efficiency of such markets. We depart from these studies by addressing

three main questions: 1) To what extent were prices on this clandestine market affected by

international arbitrage? 2) To what extent were legal changes reflected in prices? 3) Was the

market following the law of one price?

On basis of archival data, we show that arbitrage operations took place, despite the costs

and risks involved, and led to a gradual (but incomplete) convergence of gold prices between

Paris and Switzerland. We further show that arbitrage operations were highly profitable. This

profitability was apparently deemed high enough for smugglers to engage in these operations,



despite the obvious risks (being arrested for example) such an endeavor entailed. We also

provide evidence that smuggling went on long after the war’s end.

Second, on basis of an event study, we find that most legal changes that increased penalties

for black market activities had no significant impact on prices. Before 1943, it seems that

market participants on the clandestine gold market did not believe these penalties would be

applied or would concern them. By contrast, the most severe law, passed in 1943, led to a

sharp reduction in prices. By that time, both the German occupation forces and the Vichy

regime were determined to combat black markets. We attribute this price decline to the

changing environment, in which the will to implement the new laws was perceived as much


Third, we analyze the law of one price, under which one gram of gold should have a

similar value, whatever form it takes (independently of the coins considered). However, we

find significant price variations for one gram of gold contained in the three coins under

consideration. Archival evidence suggests that German buyers favored the double eagle while

French buyers preferred the napoleon. We attribute this preference to the dual nature of

money as a means of exchange and a store of value, while Sargeant and Velde (2002) focus

on coins’ value mostly as means of exchange. We argue that German buyers were not

primarily interested in gold to purchase goods directly but considered it more as a store of

value. In this case, two reasons may explain their preference for the double eagle. On the one

hand, larger coins could have been perceived as more interesting because it is easier to carry

one double eagle than five napoleons. This would be consistent with the observation that

Germans were also the largest buyers of bars and ingots. On the other hand, but with a slightly

different assumption, if French people valued napoleons more because of their liquidity (the

small coin effect), then if Germans were indifferent to the liquidity issue, it seems only logical

that they would have preferred the less liquid coins to avoid paying a liquidity premium.





ANF: French National Archives (Archives Nationales de France), Paris, France

Deutsches Institut fur Wirtschaftsforschung – Abteilung Paris:

- Politische Bestimmungsgründ des Goldpreises am schwarzen Markt in Paris in Jahre

1943. April 1944, 10 pages. Referred to in the text as the “German Note”

Shelfmark: AJ/40/831-3

Rapport d’activité du Service Français des Investigations Financières « La France au

pillage », septembre 1946, imprimerie de l’AFP.

Referred to in the text as “Pillage”

BDF: Archives of the Banque de France, Paris, France

Caisse Générale (Service des Espèces) : « Cours des monnaies d’or (marché noir),

mars 1943-mars 1945 ». (Daily quotes with some missing data).

Shelfmark: 1280200801, Box 36. References: 36-a and 36-b.

Conseil Général : « Cours du Louis (napoleon) au marché hors cote ». (Monthly

highest and lowest quotes, 1942-1945, 95 quotes).

Shelfmark: 1135200514 Box 309. Reference : 309-1.

Direction des Titres : « Cours clandestins des monnaies d’or et des devises à Paris,

1946-novembre 1947 » (140 daily quotes).

Shelfmark: 1135200514 Box 309. Reference: 309-2.

Library of Geneva, Geneva, Switzerland:

Report n° 3/1942, Société des Banques Suisses (SBS), Bale.


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Acknowledgments: The authors would like to thank the Archive Department of the Banque de

France, the French National Archives and the Library of Geneva for providing historical

documents and data. We also thank participants at the European Historical Economics Society

EHES Conference (September 4-5, 2015, Pisa, Italy), the 64 th conference of the French

Economic Association AFSE (June 22-24, 2015, Rennes, France), the Journée d’Etude en

Finance Historique (June 16, 2015, University of Picardie, France), the 13 th International

Paris Finance Meeting AFFI (December 17, 2015, Paris, France), the 33 rd French Finance

Association Conference AFFI (May 23-25, 2016, Liège, Belgium), as well as participants in

the invited seminars at the Banque de France (November 17, 2015, Paris, France), and the

seminar on “Network and Finance in the Long Term” (June 30, 2016, Toulouse Business

School, France), for suggestions and comments. Any error or shortcoming remains the

authors' responsibility.




Appendix 1: Event study methodology

1. Time line

- As explained above, the event date is the same day as the day when the law was

passed in the Parliament.

- For the event window, we choose a 10-day gap (before and after the event) because

we think that 10 days may be sufficient for the information to be disseminated and

become known to the public.

- For the estimation window, we choose the period of one trading year with about 250

trading days.

2. Calculation of abnormal returns

Without any daily market index for the study period (1941-1948), we can use only the

mean-adjusted return model, which is the follows:



















is the expected return that we estimate by the average return of 250 days prior to

the event window,


i , t

is the abnormal return of asset i on date t ,

i t

R ,

is the real rate of

return of asset i on date t within the event window.

3. T-test on the significance of abnormal returns

To test the significance of the abnormal returns, we use the t-test statistic calculated as





Where AR is the average of the abnormal returns, SE is the standard error calculated as


SE where SD is the standard deviation and n is the number of observations in the event


window. It is 21 days in our case.

Finally, for the significance of the test, we simply need to compare the test statistics with the

critical values of the Student distribution at 1%, 5% and 10% with 20 degrees of freedom (20

= n-1=21-1). They are 2.84, 2.08 and 1.72, respectively.



Appendix 2:

Number of criminal case files found in the French national archives on clandestine

trading in gold and currencies from 1939 to 1951

Dates Paris Provinces Lyon

Gold Currencies Gold Currencies Gold Currencies

November 11 to December 31, 1939 1 1 1 0

January to May 1940 18 8 42 9

From June 1940 to August 1943: Missing files

September to December 1943 1 0 8 1

1944 34 3 43 3

1945 4 1 35 11

1946 5 4 34 1 22 3

1947 5 10 33 27 24 19

January 1948 3 2 1

1948: February-December (freedom

on gold trade since February 1948) 5 11 10 4 3

1949 3 3 6 17 4 6

1950 5 3 3 12 0 7

1951 2 3 0 11 0 8

Total 78 41 219 104 55 46

% total files (543) 14% 8% 40% 19% 10% 8%

On gold: On currencies:

Total: 543 352



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