The History Of The World's "Reserve" Currency: From Ancient Greece To Today

Tyler Durden's picture

Probably the most interesting part of the previously discussed 174-page World Bank report on the future of world currencies, is, ironically, the part that deals with the past. In its discussion of why "Historically, one national currency has played a global role—or at most, a few national currencies", the WB analyzes the history of the "reserve" or dominant currency from ancient times, through today. It is an engrossing narrative which ebbs and flows with the rise and flow of the dominant superpower (no surprise there). The bottom line of course is whether or not the US will retain its superpower status in an increasingly multipolar (and developing-led) world. And whether it will be replaced by China...or nobody. The implications for the next reserve currency of choice are substantial.

Historically, one national currency has played a global role—or at most, a few national currencies

Historical records indicate that the silver drachma, issued by ancient Athens in the fifth century B.C.E. was likely the first currency that circulated widely outside its issuing state’s borders, followed by the gold aureus and silver denarius coins issued by Rome, even though the Athenian and Roman currencies circulated simultaneously for some time (see figure B3.1.1). The dominance of the Roman-issued coins was brought to an end as the long cycle of inflation that characterized the economy of the Roman Empire from the first century C.E. through the early fourth century led to a continuous devaluation of the Roman-issued currency, causing it to become increasingly less accepted outside the Roman Empire. Ultimately, the aureus became valued according to its weight rather than its imputed “face value,” trading more as a commodity than a currency outside the Roman Empire and making way for the Byzantine Empire’s heavy gold solidus coin to become the dominant currency in international trade in the sixth century.

By the seventh century, the Arabian dinar had partially replaced the solidus in this role, although the solidus continued to circulate internationally at a debased value (reflecting the high financing needs of the Byzantine Empire) into the 11th century. Large fi scal costs also led to a gradual devaluation of the Arabian dinar starting at the end of the 10th century.

By the 13th century, the fiorino, issued by Florence, was widely used in the Mediterranean region for commercial transactions, only to be supplanted by the ducato of Venice in the 15th century. In the 17th and 18th centuries, the dominant international currency was issued by the Netherlands, reflecting that country’s role as a leading financial and commercial power at the time. At that point, paper bills began replacing coins as the international currency of circulation, even though they were not backed by the Dutch government or any other entity under sole sovereign control.

It was only when national central banks and treasuries began holding gold as reserves, beginning in the 19th century, that bills and interest-bearing deposit claims that could be substituted for gold also began to be held as reserves. This development coincided with the rise of Great Britain as the leading exporter of manufactured goods and services and the largest importer of food and industrial raw materials. Between the early 1860s and the outbreak of World War I in 1914, some 60 percent of the world’s trade was invoiced in British  pounds sterling.

As U.K. banks expanded their overseas business, propelled by innovations in communications technology such as the telegraph, the British Pound was increasingly used as a currency of denomination for commercial transactions between non-U.K. residents—that is, the pound sterling became a more international currency. This role for the pound was further enhanced by London’s emergence as the world’s leading shipper and insurer of traded goods and as a center for organized commodities markets, as well as by the growing amount of British foreign investment, of which a large share was in the form of long-term securities denominated in pounds sterling.

At the beginning of the 20th century, however, the composition of foreign exchange holdings by the world’s monetary authorities began to shift, as sterling’s share declined and the shares of the French franc and the German mark increased. The beginning of World War I in 1914 is widely viewed as signaling the end of Great Britain’s leading role in the international economy and the breakdown of economic interdependence.

Despite attempts to revive the gold exchange standard after World War I and to restore an international monetary order based on fixed exchange rates, the restored system lasted only a few years. The U.S. dollar’s use internationally as a unit of account and means of payment increased during the interwar period, particularly during the 1920s, reflecting the growing role of the U.S. economy in  international trade and finance. Although gold was officially the reserve asset (and the anchor) of the international monetary system following World War II, under the Bretton Woods system of fixed exchange rates, the dollar took on the mantle of dominant international reserve currency. By the early 1970s, however, following the breakdown of the system because of its inherent Triffin dilemma, the major economies moved to implement floating exchange rates.

During the 1980s, the global economy showed indications that it was moving to a multicurrency system in which the Deutsche mark was taking on an expanded role as a key currency, both in Europe and globally. This was due to a combination of factors—low and stable German inflation; credible government policies; deep, broad, and open financial markets; and a relatively high share of differentiated  manufactured exports in Germany’s trade. The introduction of the euro in 1999 and its adoption by a growing number of EU countries in the intervening years has only revived the debate about the dollar’s future role as the dominant international currency.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Mr Lennon Hendrix's picture

Precious metal is the only asset that defines monie by the requisite four definitions.

bigdumbnugly's picture

i kinda expected the last image to be a roll of TP

Conrad Murray's picture

The end of more than just fiat is near when things like this start cropping up...

chubbar's picture

OT but a wikileaks cable that spells out the unconstitutional efforts to integrate our country with that of Canada and Mexico. AKA North American Union

Harbourcity's picture

Following up a post above yours, no thanks from Canada, ours is two ply!

Vanderdekken's picture

Let me first make clear that I in fact do hold silver bullion. Given that, here's something I've noticed. People have been saying the end of the paper dollar is near for the past three or even four years now... How close are we to the end? 

In the end, I think it would be better to be conscious of what might happen if the USD looses up to 80% of it's value (just a random number) but let's face it. Paper money isn't going anywhere. We've effectivley evolved from using gold and silver coins. Just look at the aftermath of Weimar germany; Hitler (don't quote me on this) issued a new currency that was basically a claim on labor. 

Still again, nobody knows. My main point is that instead of bluntly hawking the demise of fiat money, be ready for any scenario. That's how people survive.

tmosley's picture

Hitler's currency and economy would have collapsed in a few years even without the Allied attack, just like the economy of Spain collapsed under Marco during the early years (while the currency suffered from persistent just shy of hyperinflation), leading to mass starvation.

The starvation and economic decline was only halted by a return to "free market" economics in 1959. I put free market in quotes because it was still an authoritarian regime. In terms of economics, they became quite free, though the people were still brutally repressed at that point. The "Spanish Miracle" that followed speaks to the power of even limited free markets. Basically, loads of manufacturers moved in to take advantage of the low or zero percent taxes.

h3m1ngw4y's picture

Better one year early than a minute late.

Cognitive Dissonance's picture

I tend to agree with your very short term analysis Turd.

Speaking only for myself and not you, for the next few weeks I suspect we will see an engineered push higher in nearly all risk assets. I like the fact that you are willing to look at other asset classes when trying to determine where the PMs are headed. I also noticed the S&P and PM correlation over the last few weeks.

I expect liftoff of the S&P to 1400/1420 in the next few days. Then, it appears the next major plunge will occur. Bernanke needs the political cover of everyone begging him to print like the mad hatter. So he and his supporting cast will produce begging on command. I don't beg. I just roll over and buy PMs.

DaveyJones's picture

I always thought he was more Carrol's Queen and all I can think to say to him are the words of the cake 

Mr Lennon Hendrix's picture

Bernanke needs no cover; he is above politics; he is a scientist; he has the cover of economics- this neo Keynesian game of checkers (if even) he is playing has the backing of the ivy league:  the people that get articles in the NYT, WP, etc, they house themselves in the schools of the learned, the ivory towers.

Bernanke needs no cover.  He will say what he has done has worked, the economy is still weak, his beard will say, as he cites unemployment.  His beard will say, 'Inflation is still low; we are looking for a target inflation of 3% and so we still have maneuverability to keep rates low for an extended (up the rear, aids or not) period of time to reach our goal.'  His colleagues will agree, we need to print more money.  His colleagues will raise hell to raise the debt ceiling.  And his colleagues will agree, 'bla bla bla'.

The opponents in this Hegelian dialectic will not disagree, for they too sponser this rhetoric (we are all aids vitcems now) as they are the other side of the same coin.  Yet, yet they will  'say' they have an opposing view, and this view is to cut, or rather gut, the pension system.  This while Timmah loots the pension system.  They will atack the people, we the people, from all sides, until there is nothing left of the people, we, the collective people.

As far as finance, the Dow (for example) will serpintinethe 12k range top to bottom while the algo machines housed in the Major Banks trade the tops and bottoms like day traders who never sleep.  Then, once Bernanke utters the words, "Quantitative Easing is working" the day will skip through Dow 13k faster than a sister on a jump-rope.  How ironic that 13 is an unlucky number for those who believe it so, who believe the fear based agenda that has been propagated by the power hungry.  13 is a lucky number for those that understand what it stands for, which is the collective- the godhead.  13 is us, and we have the power.  Together, we have the power.

Cognitive Dissonance's picture

Even the mighty lion often hunts in packs where it has near total superiority. Why stick your neck out and go against the proletarian crowd when by creating panic you can be lifted by the crowd and rejoiced as their savior.

There is always a political element involved when 'we the people' still believe we have the power.....even if we don't and never had. Better to let us continue in our delusion then deal with a whole new set of unsettling cognitive dissonances. It so much easier to manipulate the people into asking for what Ben and Company want in the first place.

They are playing the long Con. We must never forget that.

Problem Is's picture

+5... Complete, logically valid and utterly correct analysis...

Mr Lennon Hendrix's picture

Edit:  Final paragraph, first sentence:

As far as finance, the Dow (for example) will serpentine the 12k range top to bottom until  QE whatever the fuck number we are putting next to it is mandated, while the algo machines housed in the Major Banks trade the tops and bottoms like day traders who never sleep.

4realmoney's picture

This article neatly summarizes why gold needs to be the investment of choice regardless whether we are headed to hyperinflation or deflation:

4realmoney's picture

This article neatly summarizes why gold needs to be the investment of choice regardless whether we are headed to hyperinflation or deflation:

Mountainview's picture

10 years from now: Chinese Yuan will be next together with a restructured USD and a remodeled EURO (after a short pause with Gold as reference standard)

JLee2027's picture

No fiat currencies will survive past the next 18 months is my prediction.

RobotTrader's picture

There appears to be yet another global panic to acquire U.S. Fiatscos this morning.

As well as U.S. Treasuries, as the 10-yr. is within a hairsbreadth of crashing below 3%.

And don't forget the Muni-bond ETF, now up 30-days straight and within a stone's throw of new highs.

russki standart's picture

Interesting... it seems to me that on the DXY the USD is up only slightly. Respectfully, how did you derive this conclusion?

LawsofPhysics's picture

Yep.  Absolute power corrupts, absolutely.  Always has always will.  Why the rest of the world didn't kick the dollar to the curb back then is beyond me.  Perhaps it was the lack of internet service back then.

FEDbuster's picture

The dollar is now backed by the US military.  The tag line "In God We Trust" should be changed to "Accept This, or Else".  Force and fear rule the day. How long can we use Mob tactics to "rule" the currency market?

I would love to see Zimbabwe issue a gold backed currency.  How ironic would that be that the first country to issue a 100 trillion dollar fiat bank note, would become one of the most stable hard money currencies in the world?

DaveyJones's picture

mob tactics work for a while then collapse. A world wide military is one of the more expensive hobbies and a poor subsitute for an economy 

Cash_is_Trash's picture


- I had to get it out!

LawsofPhysics's picture

Works fine and good until that military runs out of fuel.

FEDbuster's picture

They will be the last ones to run out of fuel.  If they can't pay for it, they will take it.  You would see drilling platforms off the beach at Malibu, before the US military runs out of fuel.

LawsofPhysics's picture

Take it from where?  What fuel?  Do they know about my methane digesters?  I don't think so.  Necessity is the mother of invention and the American government has been driving intelligence, innovation, and smart capital out of this country for 30+ years.

dugorama's picture

except of course that 95 or so of the world's top 100 universities are in the US and are largely gov't funded... no I don't mean tuition, I mean NIH research grants, etc.  check out any grad school in the country and see what fraction of the students (and, increasingly, professors) hold US passports.  This is perhaps the one place the US gov't has not (yet) hampered biz - intellectual development world wide is hugely dominated by US universities.


From the Chronicle of Higher Ed (

"Foreign-student enrollments grew 3 percent in fall 2010."


"Foreign-student applications to American graduate schools are up 9 percent over last year, with much of the increase fueled by a double-digit expansion in applications from prospective Chinese students"



"In last year’s annual Open Doors report, China overtook India as the country sending the most students to the U.S"

Urban Redneck's picture

And in the intervening several years, between deciding to drill in Malibu and extracting oil from Malibu, GI Joe will have to learn how to march again (and swim too, since we don't have any nuclear-powered landing craft).

DaveyJones's picture

why use the future tense. We are "taking it" as we speak 

Treasure Freedom's picture

The dollar is backed by fear... Fresh water is the ultimate currency.. Silver & Gold > US dollar.

Josh Randall's picture

What, no TZOO gloating this monring ? Up $3 and change -- maybe TZOO credits are tied into the basket that make up the SDR's

Internet Tough Guy's picture

TZOO down almost 40% since Momo was pumping it. Always fade momofader.

He also lost money buying silver, apparently.

Thanks, Mega Bear
RobotTrader - Tue, May 17, 2011 - 04:39 PM

But after the horrific beating I took on my PM's this year, my chances of owning a Lexus now are slim to none. And slim just left the room....



LawsofPhysics's picture

Where is that dollar now robo?

LawsofPhysics's picture

There is a lot of physical in that picture.  Got yours?

MiguelitoRaton's picture

Let's play "Which one of these items is different" with the picture above, OK boys and girls?

Transformer's picture

Only one of them has a woman on it, the British pound. 

russki standart's picture

The more things change, the more they stay the same. Gold is always, in the end, real money.

HamyWanger's picture

Gold is a money only in the psychotic minds of libertarian goldbugs.

In the real world, you can't buy a loaf of bread with gold, and it doesn't have any probability to change one day. 

Dr. No's picture

More importantly, you cant pay your tax bill in gold.  You need dollars.  This is a huge demand which will continue to support the dollar as a means of exchange within the united states.

Careless Whisper's picture

going all the way back to 1 BC, like the money chart above; just one question, has gold ever defaulted?  anyone? anyone?


HamyWanger's picture

You completely miss the point, like every goldbug. 

Yes, we know gold is a good money, probably perfect, even if a well-managed paper currency can do as well. 

But you wrongly assume that those who have the power (and in our current world, those who are elected by the people) will adopt this perfect currency. 

Just because something is good does not mean people will rush to it. Actually, history proves the contrary. 

Careless Whisper's picture

But you wrongly assume that those who have the power (and in our current world, those who are elected by the people) will adopt this perfect currency.

They will adopt the perfect currency for the people they serve, which is the large global banks. Right now the dollar serves that purpose, but that could change.

LawsofPhysics's picture

yep, see my comment below.  PMs can be turned into fiat very easily, regardless of the fiat of the day!

LawsofPhysics's picture

No, you complete miss the point.  It is very easy to turn PMs into paper (lots of it) to pay whatever you need to pay.  I do this all the time.  Buying power is all that matters.  Should the fraud continue to go unpunished, the real drivers of the economy (those that add real value, not simply push paper around) will go elsewhere.  History shows that paper remain good as long as the "faith" behind that paper is there.  Black market volume has grown by leaps and bounds since 2008.  How is that volume on Wall street going?  It is fucking laughable.  You wrongly assume that those in power will stay in power.  With 45 million American on SNAP already and the financial fucknuts insisting on an economic model that depends on infinite growth on a finite planet, you are more than missing a few important points Hamy.

Stay ahead of the herd hamy!  yeah, people are, in general, stupid.  Since when did Nature guarantee your survival based on intelligence?  Big difference between knowledge and wisdom hamy.