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The History Of The World's "Reserve" Currency: From Ancient Greece To Today
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.
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That is awesome. I had an opportunity a while back to buy some (debased) Greek coins, but I passed them up in favor of more silver (naturally).
Cool.
Did you purchase it, was it passed down through generations or did you bring it with you from one of your prior incarnations?
Please tell me it is door number three and how you got it through the womb metal detector. That would be really cool. :>)
Here's the story Cog,
Couple years ago when gold hit $1,000 to celebrate I wanted to have a couple gold rings made and wanted to do it before gold got really pricey...(like $1500)But not just any gold rings. The best.
I got the coin at APMEX at a close out sale on their ancient coins for $450 and had a super talented jewler clip it and bend it and put it in a pure gold 1 oz ring. (Sacralige I know but I look like Julius Ceasar when I wear it.) I also found a beautiful dime sized red christaline garnet with an intricate intaglio phoenix carved in it at an antiquities dealer in Perth. This came from ancient Persia. Had the same jewler put it in a pure gold ring. I look like Marc Anthony when I wear that one. These are the only jewelry I own so I'm probably a reincarnated Roman I would guess.
Damn, now I want one too.
GET YOUR OWN ROMAN GOLD COIN RING!
Looks like they are all knock offs.
:(
America is the reincarnated Rome so being a reincarnated Roman makes you merely one out of 300 million. No big deal. :>)
And you didn't do anything worse to that coin than the Romans did when they debased the Gold in it over a period of 200 years. So you are absolved of any wrong doing since you left it mostly intact. :>) :>)
image? use your laptop camera to snap a shot , upload to your flickr account and link it would you? I'd love to see what a real one looks like.
GET YOUR OWN ROMAN GOLD COIN RING!
"Mustang: A lost Tibetan Kingdom" by Michael Peissel. About his trip in Tibet in 1964...
"...a lot had silver coins from all over the world, money here being directly related to it's weight in silver. I saw old French francs, American silver dollars, Egyptian piastres, Chinese dollars, and ancient Austrian schillings; many of these coins in the West would only be found in collectors' hands but here they were still actively traded and to be found in everyone's pockets." Page 50
I am certain this has been brought up already, but I have fallen behind on my ZH reading the past day or so. I was wondering what everyone though of this (specefic in bold)
Is Ron Paul bringing this up because he would like to see if any gold is actually there (a form of audit)?
He cannot possibly believe that gold is now entering a bear market, could he?
Gordon Brown made a big mistake doing this in Britian over a decade ago right near the beginning of the gold bull market. Ron Paul is not stupid like that therefore I can only conclude that he wants the audit. Wondering what other ZHers think.
baby_BLYTHE,
I think that is a case of not so good reporting.
As it is written here, it sounds like Ron Paul is calling for an accounting of the reserves versus an outright sale, and that on principle if a nation or person is in debt they should sell their gold to pay the debt. It makes a nice headline, but if you dig deeper the headline is not so accurate.
http://investmentwatchblog.com/ron-paul-sell-the-gold-in-fort-knox/
Valued in current debauched dollar value gold may be high, but in relation to the "old" dollar and the DOW the historical value of gold should be closer to $2,300 an ounce or more.
Hopefully he just want's to get to the bottom of the issue. If the US still has the gold and he want's to sell it, I just lost what respect I had for him.
Actually, I support the US gov sale of gold if done conditionally. If the sale was to US citizens and a cap on the total amount each person could buy, I would support the sales. The US goverment took (stole?) the gold from the people in the first place (executive order), why shouldnt the people have it back. What advantage is there in haveing the gold horded by the government and not in the hands of the people?
Depends, can we buy it back at $20?
We can haggle about the price. could even be market price. I want to see a "Uncle Sam" poster which calls for all US citizens to do their patriotic duty of paying down the us debt by purchasing US goverment gold. Win-win. The government gets to pay down debt, I get to exchange fiat for gold.
If the us has 800 tons of gold that would equal 25,720,000 million ounces multiplied by $1500 is approx $38 billion if I didn't make a mistake. Selling our gold won't do much against $15 Trillion in debt. What we need to do is revalue gold by dividing 15 Trillion by 55,720,000 million ounces and then sell it. Just a thought.
My objective is to get the gold in my hands. If the government cannot pay off their debt entirely using the proceeds, they will need need to identify plan B.
Oops. I was off by a factor of 10, so the US would have the equivalent to $380 billion with 8,000 tons of gold not 800 tons.
Good point. US citizens should have 1st shot at buying it back.
I can't wait until i'm heating my home with physical dollars... Burning benjamins to cook food... while my 'shiny usless metal' sits in my abnormally heavy safe ;-)
The most stable, almighty asset in the world will soon replace the U.S. dollar as the Worlds Reserve Currency: The Russell 2000.
One of these things is not like the other . . . Gee, I think a 4-year-old could figure this one out.
I'm sure that whatever you people are discussing on this thread is very important, but what I want to tell you all is that I'VE GOT MY ZERO HEDGE HAT !!!
Dagny said we should all get hats, so I ordered my hat. It's black! It's cool! It's adjustable! It fits!
I will never take off my Zero Hedge hat.
Nice.
I'd get one, but I'm not a hat kind of guy. Plus my dog hates it when I wear hats for some reason. I think he must have been kicked by someone wearing a hat when he was a puppy.
All of this because we are in the NEO MIDDLE AGES.
Medieval times here we are!
Like this?
http://www.youtube.com/watch?v=QRKxkCVW-gw
Starting at 9:40
You left one out. It's not only in Ghana that chocolate is considered a currency. It's the new normal in el-Erian's multi-polar world and this new currency is registered with the Feds and it's unlikely that you'll see Russell Stover ending up sharing a cell with that Liberty Dollar guy.
http://www.trademarkia.com/russell-stover-note-1000000000-in-santa-we-trust-1000000000-25-one-billion-12251225-25-net-wt-2-oz-57-g-santa-mrs-s-claus-wife-of-santa-2-77919992.html
Dave Harrison
www.tradewithdave.com
Now that's a currency with a real melt value. Plus it satisfies some people's fifth criteria for currency: you CAN eat it.
I am waiting for Gold to fall to $1430, when I want to make a big purchase. come on Gold, come down, I will wait for a max of one month.
The next world reserve currency is going to be digital, no more paper or gold. It may linked to gold. The world governments need to do away with all paper so they can control black markets, illegal drugs, etc along with tax evasion. Shortly every thing is going to have a money trail. No more money laundering. A while back the banks in Italy declared war on cash because of lost fees. Italians use credit and debit cards at about 50% of the rest of Europe. Also look at the recent European McDonald's operations no longer accepting paper currency. Digital only.
Can you say one world government?
Energy coins with built in nano batteries......crazy but possible.
bitcoins bitcoins bitcoins wonderful algo... miners and everything.. price has shot from pennies to $8 in a year
http://www.youtube.com/watch?v=BzBCbO8U45w
not sure why Tyler hasn't pushed this yet.. seems like a ZH wetdream
So the question is
Silver or Gold and why? Don't say both you have to pick ONE and tell WHY
I pick Gold and Silver. ratio 10:1. Gold reserve. Silver traded
Does anyone here know of a gold/silver exchange that doesn't take high commish off both sides of the trade?
I'm surprised I couldn't find some website providing a meeting place for trading metals at a low cost.
Have you tried spotmex?
Thanks TF
I tried to get there but maybe their site is down temp.
For 2,000+ years (until 1971), the reserve currency was either gold, silver, or paper which was convertible to gold or silver. How the US managed to get people to accept paper dollars as a reserve currency is something that I'll never understand. Why people continue to buy US Treasuries is another mystery to me.
we need a currency that is accepted world-wide and is also edible, like pancakes.
Or bacon.
“The gold standard was based on what was essentially an irrational superstition. As long as people believed there was no salvation but the gold standard, the thing could work. That illusion or superstition has been lost. We now can never successfully run a gold standard. I wish we could. It’s largely as a result of this that I have been thinking of alternatives.” -F.A. Hayek
There is no coin more noble than a Gold Sovereign
Eccessiastes 8:4 Where the word of a king is, there is power: and who may say unto him, What doest thou?
Mr. Durden's typically well researched, erudite, and enlightening posting is most informative. His grasp of complex economics is vey impressive, as is that of almost all of the other posters on this thread.
There is a substantial aspect of this discussion that it missing. Particularly, and historically, it was not the country of origin of a particular monetary unit that made for its value, nor its decline. It was not the particular monetary unit, ie - the Drachma, the Denarius, that made for its value, nor its decline in value. What made for its value was its precious metal content. As the particular currency unit was debased, or 'nicked', and this debasement discovered, it declined in value. You coin collectors out there, check "billon", where otherwise 'silver' coins were near sprayed with silver to give the appearance of precious metal, when there otherwise was none. Fort Knox?
I think Greece invented too much stuff. Ish starts backfiring.
Gold and silver have been defacto monetary standards throughout history. They have intrinsic value that doesn't have to be defined by government.
The US Constitution says gold and silver coin will be money in America.
It doesn't say the federal government must supply all that gold and silver coin. Any gold and silver coin, from anywhere, would be constitutional in America.
Immigrants arriving in America with a pocket full of foreign gold & silver coin didn't have to exchange it for American coin. Their foreign gold & silver coin was just fine.
The Constitution doesn't say paper receipt for gold & silver on deposit can't be accepted as money. If the seller is willing to accept it, fine, no problem.
It says the federal government can't declare paper receipt for gold and silver on deposit as money, because it would open up the possibility of fraud.
Paper currency declared by law to be money at a set amount of gold or silver is where fraud comes into the picture.
There is no way someone can verify the issuer actually has that much gold or silver in their possession nor how much of said currency has been issued.
Every paper currency collapse down thru history came about when people finally realized said currency was worthless in terms of gold or silver.
The Fed cannot prevent a dollar collapse, because they can't control what people think about the dollar. They can't control what people believe a dollar is worth.