Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
US Housing Market House Prices Momentum Analysis - 26th Feb 21
FOMC Minutes Disappoint Gold Bulls - 26th Feb 21
Kiss of Life for Gold - 26th Feb 21
Congress May Increase The Moral Hazard Building In The Stock Market - 26th Feb 21
The “Oil Of The Future” Is Set To Soar In 2021 - 26th Feb 21
The Everything Stock Market Rally Continues - 25th Feb 21
Vaccine inequality: A new beginning or another missed opportunity? - 25th Feb 21
What's Next Move For Silver, Gold? Follow US Treasuries and Commodities To Find Out - 25th Feb 21
Warren Buffett Buys a Copper Stock! - 25th Feb 21
Work From Home Inflationary US House Prices BOOM! - 25th Feb 21
Man Takes First Steps Towards Colonising Mars - Nasa Perseverance Rover in Jezero Crater - 25th Feb 21
Musk, Bezos And Cook Are Rushing To Lock In New Lithium Supply - 25th Feb 21
US Debt and Yield Curve (Spread between 2 year and 10 year US bonds) - 24th Feb 21
Should You Buy a Landrover Discovery Sport in 2021? - 24th Feb 21
US Housing Market 2021 and the Inflation Mega-trend - QE4EVER! - 24th Feb 21
M&A Most Commonly Used Software - 24th Feb 21
Is More Stock Market Correction Needed? - 24th Feb 21
VUZE XR Camera 180 3D VR Example Footage Video Image quality - 24th Feb 21
How to Protect Your Positions From A Stock Market Sell-Off Using Options - 24th Feb 21
Why Isn’t Retail Demand for Silver Pushing Up Prices? - 24th Feb 21
2 Stocks That Could Win Big In The Trillion Dollar Battery War - 24th Feb 21
US Economic Trends - GDP, Inflation and Unemployment Impact on House Prices 2021 - 23rd Feb 21
Why the Sky Is Not Falling in Precious Metals - 23rd Feb 21
7 Things Every Businessman Should Know - 23rd Feb 21
For Stocks, has the “Rational Bubble” Popped? - 23rd Feb 21
Will Biden Overheat the Economy and Gold? - 23rd Feb 21
Precious Metals Under Seige? - 23rd Feb 21
US House Prices Trend Forecast Review - 23rd Feb 21
Lithium Prices Soar As Tesla, Apple And Google Fight For Supply - 23rd Feb 21
Stock Markets Discounting Post Covid Economic Boom - 22nd Feb 21
Economics Is Why Vaccination Is So Hard - 22nd Feb 21
Pivotal Session In Stocks Bull Bear Battle - 22nd Feb 21
Gold’s Downtrend: Is This Just the Beginning? - 22nd Feb 21
The Most Exciting Commodities Play Of 2021? - 22nd Feb 21
How to Test NEW and Used GPU, and Benchmark to Make sure it is Working Properly - 22nd Feb 21
US House Prices Vaccinations Indicator - 21st Feb 21
S&P 500 Correction – No Need to Hold Onto Your Hat - 21st Feb 21
Gold Setting Up Major Bottom So Could We See A Breakout Rally Begin Soon? - 21st Feb 21
Owning Real Assets Amid Surreal Financial Markets - 21st Feb 21
Great Investment Ideas For 2021 - 21st Feb 21
US House Prices Momentum Analysis - 20th Feb 21
The Most Important Chart in Housing Right Now - 20th Feb 21
Gold Is the Ultimate Reserve Asset - 20th Feb 21
Is That the S&P 500 And Gold Correction Finally? - 20th Feb 21
Technical Analysis of EUR/USD - 20th Feb 21
The Stock Market Big Picture - 19th Feb 21
Could Silver "Do a Palladium"? - 19th Feb 21
Three More Reasons We Love To Trade Options! - 19th Feb 21
Here’s What’s Eating Away at Gold - 19th Feb 21
Stock Market March Melt-Up Madness - 19th Feb 21
Land Rover Discovery Sport Extreme Ice and Snow vs Windscreen Wipers Test - 19th Feb 21
Real Reason Why Black and Asian BAME are NOT Getting Vaccinated - NHS Covid-19 Vaccinations - 19th Feb 21
New BNPL Regulations Leave Zilch Leading the Way - 19th Feb 21
Work From Home Inflationary House Prices BOOM! - 18th Feb 21
Why This "Excellent" Stock Market Indicator Should Be on Your Radar Screen Now - 18th Feb 21
The Commodity Cycle - 18th Feb 21
Silver Backwardation and Other Evidence of a Silver Supply Squeeze - 18th Feb 21
Why I’m Avoiding These “Bottle Rocket” Stocks Like GameStop - 18th Feb 21
S&P 500 Correction Delayed Again While Silver Runs - 18th Feb 21
Silver Prices Are About to Explode as Stars are Lining up Like Never Before! - 18th Feb 21
Cannabis, Alternative Agra, Mushrooms, and Cryptos – Everything ALT is HOT - 18th Feb 21
Crypto Mining Craze, How We Mined 6 Bitcoins with a PS4 Gaming Console - 18th Feb 21
Stock Market Trend Forecasts Analysis Review - 17th Feb 21
Vaccine Nationalism Is a Multilateral, Neocolonial Failure - 17th Feb 21
First year of a Stocks bull market, or End of a Bubble? - 17th Feb 21
5 Reasons Why People Prefer to Trade Options Over Stocks - 17th Feb 21
The Gold & Gold Stock Corrections Are Normal - 17th Feb 21
WARNING Oculus Quest 2 Update v25 BROKE My VR Headset! - 17th Feb 21
UK Covid-19 Parks PACKED During Lockdown Despite "Stay at Home" Message - Endcliffe Park Sheffield - 17th Feb 21
How to Invest in ETFs in the UK - 17th Feb 21
Real Reason Why Black and Asian Ethnic minorities are NOT Getting Vaccinated - NHS Covid-19 Vaccinations - 16th Feb 21
THE INFLATION MEGA-TREND QE4EVER! - 16th Feb 21
Gold / Silver: What This "Large Non-Confirmation" May Mean - 16th Feb 21
Major Optimism for Platinum, Silver, and Copper - 16th Feb 21
S&P 500 Correction Looming, Just as in Gold – Or Not? - 16th Feb 21
Stock Market Last pull-back before intermediate top? - 16th Feb 21
GAMESTOP MANIA BUBBLE BURSTS! Investing Newbs Pump and Dump Roller coaster Ride - 16th Feb 21
Thinking About Starting to Trade This Year? Here Are Some Things to Keep in Mind - 16th Feb 21
US House Prices Real Estate Trend Forecast Review - 15th Feb 21
Will Tesla Charge Gold With Energy? - 15th Feb 21
Feeling the Growing Heat and Tensions in Stocks? - 15th Feb 21
Morgan Stanley Warns Gasoline Industry Is About to Become Totally Worthless - 15th Feb 21
Debts Lift Gold - Precious Metal Prices Will Rise on a Deluge of Red Ink - 15th Feb 21
Platinum Begins Big Breakout Rally - 15th Feb 21
How to Change Car Battery Without Losing Power, Memory, Radio Code Settings - 15th Feb 21
Five reasons why a financial advisor can make a big difference to your small business - 15th Feb 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

The Fate of Paper Money, Fiat Currency

Currencies / Fiat Currency Jan 07, 2009 - 10:22 AM GMT

By: Mike_Hewitt

Currencies

Best Financial Markets Analysis Article"Paper money eventually returns to its intrinsic value - zero." (Voltaire, 1694-1778)

Paper Money in Asia

The first well-documented widespread use of paper money was in China during the Tang (618-907 A.D.) dynasty around 800 A.D. [1] Paper money spread to the city of Tabriz, Persia in 1294 and to parts of India and Japan between 1319 to 1331. However, its use was very short-lived in these regions. In Persia, the merchants refused to recognize the new money, thus bringing trade to a standstill.


Kuan Note

Figure 1. This Kuan note is the oldest known banknote in the world. It was made in China circa 1380.

By 1455, after over 600 years, the Chinese abandoned paper money due to numerous problems of over issuance and hyperinflation. An in-depth description of China's first experience with money can be found here .

Paper Money in Europe

The first instance of paper money in Europe allegedly occurred in Spain in 1438 during a Moorish invasion. A Spanish military leader issued paper notes to his soldiers that circulated around the city. No known notes have survived.

In 1574, the Dutch city of Leyden issued cardboard coins made from the cover of prayer books while Holland was trying to regain its independence from the invading Spanish.

The Italian city of Candia later issued paper money of different denominations until a shipment of coins arrived from Venice. All notes were fully reimbursed.

In 1633, the earliest known English goldsmith certificates were being used not only as receipts for reclaiming deposits but also as evidence of ability to pay.

In 1656, the Bank of Sweden was founded with a charter that authorized it to accept deposits, grant loans and mortgages, and issue bills of credit.

By 1660, the English Goldsmiths' receipts became a convenient alternative to handling coins or bullion. The realisation by goldsmiths that borrowers would find them just as convenient as depositors marks the start of the use of banknotes in England.

In 1661, the Bank of Sweden became the first chartered bank in Europe to issues notes known as the paper daler.

50-Daler Note

Figure 2. A 50-Daler note from the Bank of Sweden issued in 1666.

By the 1680's, the use of paper money began to take place in other European countries and the New World. Circulated notes on playing cards were used in the French colony of Lower Canada. Other colonies soon developed their own paper notes.

Existing Currencies in Circulation

At present there are 176 currencies in circulation in the world. Not all currencies are widely used and accepted, such as the various unofficial banknotes of the crown dependencies (Isle of Man and the Balliwicks of Jersey and Guernsey).

The median age for all existing currencies in circulation is only 39 years and at least one, the Zimbabwe dollar, is in the throes of hyperinflation. The twenty longest running currencies are listed below.

Currency Inception Years of Circulation Status
Pound Sterling (GBP) 1694 315 In circulation
Scotland Pound (SSP) 1727 282 In circulation*
US Dollar (USD) 1792 217 In circulation
Netherlands Guilder (NLG) 1814 188 EURO (2002)
Swiss Franc (CHF) 1825 184 In circulation
Guernsey Pound Sterling (GGP) 1827 182 In circulation*
Mexico Silver Peso (MXP) 1822 170 Hyperinflation
Canadian Dollar (CAD) 1841 168 In circulation
Belgian Franc (BEF) 1835 167 EURO (2002)
Cuban Peso (CUP) 1857 150 In circulation*
India Rupee (INR) 1861 148 In circulation
Manx Pound (IMP) 1865 144 In circulation*
Austrian Paper Gulden (ATP) 1753 139 Replaced for 1:2 Austria-Hungarian Kronen in 1892
Japanese Yen (JPY) 1871 138 In circulation
Haiti Gourde (HTG) 1872 137 In circulation
Swedish Krona (SEK) 1874 135 In circulation
Danish Krone (DKK) 1875 134 In circulation
Spanish Peseta (ESP) 1874 128 EURO (2002)
Peru Sol (PEH) 1864 121 Destroyed by hyperinflation in 1985
Italian Lira (ITL) 1882 120 EURO (2002)
*Not officially recognized or valued outside issuing region.

Below are charts showing the declining value of the two longest running currencies - the British pound sterling and the United States dollar, considered to be the most successful paper currencies of all time.

Purchasing Power of the British Pound Since 1694

The British Pound originally represented one troy pound of sterling silver back in 1560. Sterling silver is 92.5% pure silver and there are 12 troy ounces in a troy pound. Elizabeth I and her advisor Sir Thomas Gresham (of Gresham's Law fame) established the new currency to bring about order created by the "Great Debasement" of 1543-51 when Henry VIII sought to finance his costly wars with both France and Scotland.

Paper banknotes were issued shortly after the establishment of the Bank of England in 1694.

As of Feb 23, 2007 it now takes 86.2 GBP to purchase that same troy pound of sterling silver - a loss of 98.8%!

Purchasing Power of the US Dollar Since 1774

Under the US Mint Act of 1792, the dollar was pegged at 24.75 grains of gold. There are 480 grains in a troy ounce. Thus it took 19.4 US dollars to purchase a single troy ounce of gold. As of Feb 23, 2007 it takes nearly 863 US dollar to purchase that same troy ounce of gold, representing a 97.8% drop in value!

Currencies No Longer in Circulation

This analysis includes 599 currencies that are no longer in circulation . The median age for these currencies is only fifteen years! [2]

The following table below groups the fates of these currencies.

Currency was... No. Of Currencies Description
Ended through monetary unions, dissolution or other reforms 184 Voluntary monetary unions such as the Euro in 1999, or creation of the US dollar in 1792.
Ended through acts of independence 94 Acts of former colonial entities renaming or reforming their currency
Destroyed by hyperinflation 156 Currency destroyed through over-issuance by the government.
Destroyed by acts of war 165 Currency deemed no longer valid through military occupation or liberation.

Fate of Currencies

The Second World War saw at least 95 currencies vanish as nations were conquered and liberated.

Hyperinflation is one of the greatest calamities to strike a nation. [3] This devastating process has destroyed currencies in the United States, France, Germany, and many other countries .

Recent Expansions to the US Monetary Base

The monetary base comprises of currency in circulation (banknotes and coins) and the commercial banks' reserves with the central bank. Recently, there have been unprecedented increases to the bank reserve portion of the US monetary base .

US Monetary Base

Up until August 2008, the portion of the monetary base that consisted of bank reserves was between 8 - 12%. In December 2008, that proportion had risen to 47%! This drastic increase was due largely in part by the unwillingness of the banks to lend recent 'liquidity injections' from the Federal Reserve.

The following table shows the increases to the monetary base, as measured in US$ billions for the last six months of 2008. These actions by the Fed are responsible for the large spike on the right side of the above chart.

Date Currency in Circulation (M0) Cash Held as Bank Reserves Total Monetary Base
Jul-08 774.8 71.7 846.5
Aug-08 775.4 71.9 847.3
Sep-08 776.8 131.2 908.0
Oct-08 793.8 338.7 1132.5
Nov-08 806.5 634.6 1441.1
Dec-08 882.0 782.3 1664.3

These massive expansions to the US monetary base increase the probability of a complete collapse in the confidence of the value of the US dollar. This shift in sentiment would spark a hyperinflationary fate to the world's de facto reserve currency .

By Mike Hewitt
http://www.dollardaze.org

Mike Hewitt is the editor of www.DollarDaze.org , a website pertaining to commentary on the instability of the global fiat monetary system and investment strategies on mining companies.

Disclaimer: The opinions expressed above are not intended to be taken as investment advice. It is to be taken as opinion only and I encourage you to complete your own due diligence when making an investment decision.

Mike Hewitt Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules