A 200-year-old naval battle explains why global finance is fragile

A new paper from the Bank for International Settlements argues that a naval battle in 1805 created a global financial crisis. The Battle of Trafalgar cut off Europe's access to Latin American silver, which was the key currency of the time, leading to a credit crunch and bank failures across Europe.

This paper uses a historical event to explain a modern problem: the lack of a global lender of last resort. It suggests that financial crises are worse when there isn't enough international liquidity, or a central authority to provide it. The authors argue that the stability of a safe asset depends on both its reliable supply and the credibility of its issuer.