288 Ferguson and Schularick had been reduced by imperialism.The recent literature on the determi- nants of risk premia has centered on these other factors An alternative approach focuses on monetary policy rather than colo- nial status.Michael Bordo and Hugh Rockoff argued that adherence to the gold standard worked as a credible "commitment mechanism,"reas- suring investors that governments would not pursue time-inconsistent fiscal and monetary policies.Investors rewarded this binding policy commitment by charging-ceteris paribus-lower risk premia.The gold standard worked in this respect as a "Good Housekeeping seal of ap- proval."A commitment to gold convertibility,they calculate,reduced the yield on a country's bonds by around 40 basis points.20 Using a somewhat larger sample,Obstfeld and Taylor confirmed that gold stan- dard membership lowered spreads.21 In this analysis,therefore,it was membership of the informal and voluntary gold "club"rather than membership of the British Empire that lowered the yields paid by some emerging markets.As Obstfeld and Taylor conclude,"Membership in the British Empire was neither a necessary nor sufficient condition for preferential access to London's capital market before 1914.22 As a contingent commitment,however,membership in the gold stan- dard was nothing more than a promise of self-restraint under certain cir- cumstances.Independent countries on gold were not members of some kind of monetary union.They retained the right to suspend convertibil- ity in the event of an emergency such as a war,revolution,or a sudden deterioration in the terms of trade.Such emergencies were in fact quite common before 1914.Argentina,Brazil,and Chile all experienced seri- ous financial and monetary crises between 1880 and 1914.By 1895 the currencies of all three had depreciated by around 60 percent against sterling.This had serious implications for their ability to service their external debt,which was denominated in hard currency (usually ster- ling)rather than domestic currency. A second hypothesis is that investors were primarily interested in the fiscal policies of borrowing countries.Marc Flandreau and Frederic Zumer have recently suggested that the most important risk factors were public debts,the corresponding amount of debt service,and the relation between these burdens and tax revenues.3 They find that,once differ- ences in indebtedness are taken account of,gold standard adherence was insignificant.In addition,they present evidence that contemporary 19Bordo and Kydland,"Commitment Mechanism,"p.56;and Bordo and Schwartz,"Mone- tary Policy Regimes,"p.10. 0 Bordo and Rockoff,“Gold Standard,”p.327. 21 Obstfeld and Taylor,"Sovereign Risk,"p.253. 22Obstfeld and Taylor,"Sovereign Risk,"p.265. 2 Flandreau and Zumer,Making ofGlobal Finance;see also Flandreau et al,"Stability."288 Ferguson and Schularick had been reduced by imperialism. The recent literature on the determi￾nants of risk premia has centered on these other factors. An alternative approach focuses on monetary policy rather than colo￾nial status. Michael Bordo and Hugh Rockoff argued that adherence to the gold standard worked as a credible “commitment mechanism,” reas￾suring investors that governments would not pursue time-inconsistent fiscal and monetary policies.19 Investors rewarded this binding policy commitment by charging—ceteris paribus—lower risk premia. The gold standard worked in this respect as a “Good Housekeeping seal of ap￾proval.” A commitment to gold convertibility, they calculate, reduced the yield on a country’s bonds by around 40 basis points.20 Using a somewhat larger sample, Obstfeld and Taylor confirmed that gold stan￾dard membership lowered spreads.21 In this analysis, therefore, it was membership of the informal and voluntary gold “club” rather than membership of the British Empire that lowered the yields paid by some emerging markets. As Obstfeld and Taylor conclude, “Membership in the British Empire was neither a necessary nor sufficient condition for preferential access to London’s capital market before 1914.”22 As a contingent commitment, however, membership in the gold stan￾dard was nothing more than a promise of self-restraint under certain cir￾cumstances. Independent countries on gold were not members of some kind of monetary union. They retained the right to suspend convertibil￾ity in the event of an emergency such as a war, revolution, or a sudden deterioration in the terms of trade. Such emergencies were in fact quite common before 1914. Argentina, Brazil, and Chile all experienced seri￾ous financial and monetary crises between 1880 and 1914. By 1895 the currencies of all three had depreciated by around 60 percent against sterling. This had serious implications for their ability to service their external debt, which was denominated in hard currency (usually ster￾ling) rather than domestic currency. A second hypothesis is that investors were primarily interested in the fiscal policies of borrowing countries. Marc Flandreau and Frédéric Zumer have recently suggested that the most important risk factors were public debts, the corresponding amount of debt service, and the relation between these burdens and tax revenues.23 They find that, once differ￾ences in indebtedness are taken account of, gold standard adherence was insignificant. In addition, they present evidence that contemporary 19 Bordo and Kydland, “Commitment Mechanism,” p. 56; and Bordo and Schwartz, “Mone￾tary Policy Regimes,” p. 10. 20 Bordo and Rockoff, “Gold Standard,” p. 327. 21 Obstfeld and Taylor, “Sovereign Risk,” p. 253. 22 Obstfeld and Taylor, “Sovereign Risk,” p. 265. 23 Flandreau and Zumer, Making of Global Finance; see also Flandreau et al., “Stability