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
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: firstname.lastname@example.org 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, email@example.com, University of Orléans, France, b T. H. V.
Hoang firstname.lastname@example.org, Montpellier Business School and Montpellier Research in Management,
France and K. Oosterlinck (Corresponding author), email@example.com 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
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
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”
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
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
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
TOTAL PURCHASES 2,106
At official prices 331
BLACK MARKET PREMIUM 1,776
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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”
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
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
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 ,
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.
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