A Brief History of World Currency

Brief History Of Currency 

What You Should Know 

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Brief History Of Currency 

Here is a Brief History of Currency in The World. 

I want to share the mistakes in the global financial system from the past, 

and how it reflects many important aspects of today's monetary system. 

- In 1921, Germany destroyed its currency. 

- In 1925, France, Belgium and others did the same thing. 

But what was going on at that time prior to World War I in 1914? 


The Gold Standard 

For a long time before that, the world had been on what’s called the 

classical gold standard. 

If you had a balance of payments, your deficit, you paid for it in gold. 

And if you had a balance of payment surplus, you acquired gold. 

GOLD WAS THE REGULATOR OF EXPANSION OR 

CONTRACTION OF INDIVIDUAL ECONOMIES. 

You had to be productive, and pursue your comparative advantage 

and have a good business environment to actually get some gold in 

the system or at least avoid losing the gold you had. 

It was a very stable system that promoted enormous growth and 

low inflation. 


System Ends In 1914 

That system was torn up in 1914 because countries needed to print 

money to fight World War I. When World War I was over and the world 

entered the early 1920s, countries wanted to go back to the gold 

standard but they didn’t quite know how to do it. 

Before World War I started with parity, meaning there was a certain 

amount of gold and a certain amount of paper money backed by gold. 


Paper Money Was Doubled 

Then, the paper money supply was doubled. That left only two 

choices if countries wanted to go back to a gold standard. 

They could’ve doubled the price of gold — basically cut the value of 

their currency in half or they could’ve cut the money supply in half. 

They could’ve done either one but they had to get to the parity 

either at the new level or the old level. 


What France Did 

WHAT FRANCE DID 

The French said, “This is easy. We’re going to cut the value of the 

currency in half.” They did that. 

If you saw the Woody Allen movie Midnight in Paris, it shows U.S. 

expatriate living a very high lifestyle in France in mid-1920s. That was 

true because of the hyperinflation of France. It wasn’t as bad as the 

Weimar hyperinflation in Germany, but it was pretty bad. 

If you had a modest amount of dollars or gold, you could go to 

France and live like a king. 


What The UK Did 

WHAT THE U.K. DID 

The U.K. had the same decision to make but they made it differently 

than France did. 

There, instead of doubling the price of gold, they cut their money 

supply in half. They went back to the pre-World War I parity. That was 

a decision made by Winston Churchill who was Chancellor of 

Exchequer at that time. 

However, when you doubled the money supply, regardless if you did 

not like it, you have to own up to that and recognize that you’ve 

trashed your currency. Churchill felt duty-bound to live up to the 

old value. 

He cut the money supply in half and that threw the U.K. into a 

depression three years ahead of the rest of the world. 


World Went Into Depression 

While the rest of the world ran into the depression in 1929, the 

U.K. started in 1926. 

Going back to gold at a much higher price measured in sterling would 

have been the right way to do it. Choosing the wrong price was a 

contributor to the great depression. 

Economists today say, “We could never have a gold standard. 

Don’t you know that the gold standard caused the great 

depression?” 

Well, they are wrong. It was a contributor to the great depression, but 

it was not because of gold, it was because of the price. 

Churchill picked the wrong price and that was deflationary. And they 

continued down that path until, finally, it was unbearable for the U.K., 

and they devalued in 1931. 


Worst Depression In History 

THE RESULT WAS, OF COURSE, 

ONE OF THE WORST DEPRESSIONS 

IN WORLD HISTORY. 


Merging Gold and The Dollar 

There was skyrocketing unemployment and crushed industrial 

production that created a long period of very weak to negative 

growth. 

And it was not resolved until after World War II, at the Bretton Woods 

conference where the world was put on a new monetary standard. 

Where almost every currency on the planet was backed by the US 

dollar, and the US dollar backed by gold, for a price of 35 dollar per 

ounce, giving “confidence” to all currencies, and “stability” to the world 

economy. 

This merge of world currencies to each other through the dollar 

and then gold, make the exchange rate fixed year after year. 


Lost Money 

However, when Charles de Gaulle former president of France realized 

that the US did not have the gold to back all of the dollars in 

circulation, because they had created and spent more than they should 

have had in wars, public works and the “great society” programs, he 

then started asking for their gold back. 

Not long after France, and other countries started to ask for their gold 

back. 

And because the US lost about 50% of its gold from 1959 to 1971, 

having 12 times more dollars than gold, president Nixon 

unilaterally terminated the convertibility of the US dollar to gold 

and the US Dollar Standard started. 


Unemployment and Inflation 

He did this to avoid a global economic collapse, to create jobs and 

promote exports to help the U.S. economy. 

But what actually happened instead? We had three recessions back to 

back, in 1974, 1979 and 1980. 

- The US stock market crashed in 1974. 

- Unemployment skyrocketed, inflation flew out of control 1977 and 1981 

- The value of the dollar was cut in half. 


The Wrap Up 

Again, whether you see this happening in our economy today or not, 

the lesson here is that governments and central banks, although well 

intended, don’t produce the results you expect. 

Things like increased exports and jobs and some growth. 

What they produce is extreme deflation, extreme inflation, recession, 

depression or economic catastrophe. 

Read full post: 

http://www.golvercard.com/blog/2015/6/24/history-of-currency 


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A Brief History of World Currency

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