Interest-Parity Condition Around the Opening of the Telegraph Between London and Paris in 1851

This paper analyzes the interest-parity condition around the opening of the international telegraph between London and Paris on November 13, 1851. Connecting these financial hubs by the first means of modern information technology changed the financial environment. Before, a London speculator comparing the short-term return between British pounds and French francs had to form an expectation about the current exchange rate in Paris. Thereafter, this expectation became obsolete. Biweekly data around 1851 suggest that the deviations from the interest-parity condition between London and Paris were relatively small. Apparently, speculators had on average already quite accurate exchange rate expectations before the introduction of the telegraph.