The history of currencies

A precondition for the money to come into existence was a simple barter when goods were changed to other goods but not a thing was of any special importance or value. Mostly it was an unfair exchange so the society needed something to be used as a universal means of payment.

Soon bronze, silver and gold started to occupy the leading positions in bargaining transaction sphere as in comparison with other goods they had a stable value. At first salesmen and traders melted metals into bars and disks and branded them stating weight and purity of the metal but some time later melting functions were taken by bodies of state power.

Until the XIX century silver and bimetal currencies were in circulation. Bimetal currencies consisted of silver and gold mixture. The spread of gold as the major international payment means started in 1696 after Great Britain passed on to the gold standard from the silver one in the process of recoining of old silver coins.

15 ounces of silver were equal to 1 ounce of gold. Underestimated full weight silver coins were melted or just brought out of the country, so gold took the leading position in money circulation of England. In 1816 gold was admitted as “the only standard measure of cost and legal payment means without any limitation in sum of payment”. In other countries silver remained to be the leading currency unit and kept its dominative positions until golden mines were explored in California in the middle of the XIX century.

In the XVIII century currency made of paper became widespread in Europe though its appearance is considered to be in the earlier period. Scientists suppose that paper money were used buy ancient Chinese traders instead of gold ones. In Europe, the role of paper money was played by receipts about taking gold and goods for storage, it also gave birth to such securities as promissory notes. In 1716 Scotsman John Law de Lauriston who became the minister of finance in France released credit money as banknotes by means of emission in order to enrich his country. His project was a complete fiasco but it gave the first impulse for mass release and usage of paper banknotes.

The main problem of paper money was its isolation from real gold content, the volume of money did not correspond the volume of precious metals supporting its nominal price. In golden and silver coins metal was its integral essence, in other words money and metal were melted together and were in separable from each other. Paper money became detached as an equivalent of goods from those ones it was associated with for a long time. It made possible to produce too much paper money that led to the loss of its stability as an equivalent of goods.

The international currency system was still linked to gold in the beginning of the XX century. As a result of long-term economic crises and World War Two that was about to over in 1944 it was decided to conduct a meeting of representatives of 41 countries in Bretton Woods in order to reform traditional system of gold standards of national currencies. It was decided to use US dollar as a reserve currency just as well as gold. The price of ounce of gold was fixed to 35 US dollars, USA promised to keep fluctuations within +/-1% of that price and other countries promised to keep their currency fluctuations within +/-1% from their nominal price.

That state of affairs was profitable for European countries at first as investments of reserves in US dollar bonds provided them with additional profit. On the other hand, US dollar had to be of the same trust as gold and the amount of dollars was to be enough to supply the increasing quantity of international deals with currencies.

By the end of 1964 reserves of US dollars of central banks reached the USA reserves of gold. Theoretically, a threshold of conversion was reached and the system of golden standard collapsed. After Bretton Woods agreement was canceled the major world currencies ceased to depend on gold and their rate started to be defined by demand and supply on the market.