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Gold has always been connected to affluence and wealth, and at one point in time, it was considered equivalent to money. Gold has a long-standing connection to the international monetary system due to its scarcity and lustre. It circulated as currency in many countries before the introduction of fiat currency. Only in the past 100 years was gold legally discontinued in all countries as a form of standard currency when the Bretton Woods agreement came into fruition in 1971. Let's explore how gold was used as currency in the past before its discontinuation.
The first record of standardized gold comes from Ancient Lydia (now modern-day Turkey) which has been using gold as money for over 2,500 years dating back to around 600 BCE. From Lydia, gold spread over ancient Europe into Persia, Greece, and Rome. Even though gold had its uses as currency back then, due to its scarcity and rarity, gold was not the de facto currency used for daily transactions. Instead, silver which was more abundant was used for the exchange of daily goods for most of the population. Gold was reserved for the wealthy for larger transactions. During the time of the Roman Empire, the last leader of the Roman Republic instituted the use of gold coins in greater quantities with the 8-gram gold aureus. These gold coins were used by the Roman Empire and continued to circulate even after the fall of Rome in the Byzantine Empire. With the shift of power east, gold as money did not return to Europe until 1252, when the Florentine Florin was introduced, after Italian cities grew wealthy from trade with India and China. This decision led to the Florin flourishing and becoming the dominating currency in Europe. Other European cities followed Italy's footsteps and minted their gold coins after the Florin. When the Spanish and Portuguese discovered the New World, they uncovered a huge influx of gold and silver, leading to a huge amount of gold and silver flowing through Asia and Europe. The Spanish issued a silver dollar in 1497 called the Real de an Ocho, which challenged Florin as the dominant currency of Europe.
With the greater abundance of silver relative to gold, the bimetallic standard was officially adopted in 1792. Under a bimetallic standard, the government recognized coins composed of either gold or silver as legal tender, meaning the Government backed the unit of currency to a fixed ratio of gold to silver. The mint ratio would be fixed by the government at the particular exchange rate at that time in response to market forces. In the 18th century, when the bimetallic standard was first imposed, one ounce of gold was equal in value to 15 ounces of silver, and a 1:15 gold/silver ratio was implemented. However, a year later, the value of silver steadily declined and gold became more valuable. This pushed gold out of circulation since the owners of gold coins would rather save the gold currency that became more valuable rather than spend it. Following this, economists such as Milton Friedman argued against the bimetallic standard, wanting to abolish the bimetallic standard to increase the volatility of financial markets instead of locking in the price of gold and silver to a pre-established ratio. In 1873 with the establishment of the coinage act, entire countries started to pivot away from silver and adopt a gold standard instead. The bimetallic standard was abolished in favour of the gold standard, and the pre-established ratio between gold and silver was cancelled, allowing gold and silver to float freely in the market.
In 1819, Britain became the first country to officially adopt a gold standard. After a century of discoveries and an increase in global trade, increased production brought large quantities of gold which helped the gold standard remain intact until the next century. Under the gold standard, the value of a country’s currency is directly linked to gold and could be freely converted into fixed amounts of gold. International gold standards started to emerge in 1871 when it was adopted by Germany and by the beginning of the 1900s, the majority of the developed nations had implemented the gold standard to back their monetary system. The U.S. was one of the last countries to adopt the gold standard because strong silver lobbyists prevented gold from being the sole monetary system in America. Despite the new popularity of the gold standard, it was only in effect for a short time until it crumbled. With WWI, political alliances changed and government finances deteriorated, putting the gold standard in a state of limbo during the war. The financial events of WWI demonstrated to economists that the gold standard was not able to hold its weight in both good and bad times, drawing doubt to the state of the monetary system. Even after the war, the gold standard continued to lag behind the growth of the economy, and the British pound sterling and U.S. dollar began emerging as global reserve currencies instead. Britain stopped using the gold standard in 1931 and the U.S. followed and abolished the gold standard in 1933. Flash forward a few years, as WWII was coming to an end, leading Western powers developed the Bretton Woods agreement which would pave the way for the framework for the current global currency market. In 1971, the gold standard was completely abandoned and all national currencies were valued in relation to the U.S. dollar instead, which became the dominant reserve currency.
In the 21st century, gold is no longer a dominant form of currency. Fiat currency has completely overtaken gold in global markets. Financially, gold is mainly used as a form of investment to diversify risk or diversify investment portfolios. Gold, to many investors, is a key to grounding their investment portfolios through turbulent times. As a precious metal, gold price increases in response to events that would normally shake mainstream investments such as stocks or bonds, leading investors to turn to gold as a safe haven or hedge against inflation. Although the price of gold may seem volatile in the short term, gold holds its value long term and generally increases in value the longer you hold it. Investing in gold takes the form of gold bars or coins and out of all the precious metals, it is the most popular as an investment. Even though gold is no longer the dominant form of currency in the 21st century, it still has its uses in the financial world has its uses as an investment and will always have its roots and ties to money.
Gold has always been connected to affluence and wealth, and at one point in time, it was considered equivalent to money. Gold has a long-standing connection to the international monetary system due to its scarcity and lustre. It circulated as currency in many countries before the introduction of fiat currency. Only in the past 100 years was gold legally discontinued in all countries as a form of standard currency when the Bretton Woods agreement came into fruition in 1971. Let's explore how gold was used as currency in the past before its discontinuation.
The first record of standardized gold comes from Ancient Lydia (now modern-day Turkey) which has been using gold as money for over 2,500 years dating back to around 600 BCE. From Lydia, gold spread over ancient Europe into Persia, Greece, and Rome. Even though gold had its uses as currency back then, due to its scarcity and rarity, gold was not the de facto currency used for daily transactions. Instead, silver which was more abundant was used for the exchange of daily goods for most of the population. Gold was reserved for the wealthy for larger transactions. During the time of the Roman Empire, the last leader of the Roman Republic instituted the use of gold coins in greater quantities with the 8-gram gold aureus. These gold coins were used by the Roman Empire and continued to circulate even after the fall of Rome in the Byzantine Empire. With the shift of power east, gold as money did not return to Europe until 1252, when the Florentine Florin was introduced, after Italian cities grew wealthy from trade with India and China. This decision led to the Florin flourishing and becoming the dominating currency in Europe. Other European cities followed Italy's footsteps and minted their gold coins after the Florin. When the Spanish and Portuguese discovered the New World, they uncovered a huge influx of gold and silver, leading to a huge amount of gold and silver flowing through Asia and Europe. The Spanish issued a silver dollar in 1497 called the Real de an Ocho, which challenged Florin as the dominant currency of Europe.
With the greater abundance of silver relative to gold, the bimetallic standard was officially adopted in 1792. Under a bimetallic standard, the government recognized coins composed of either gold or silver as legal tender, meaning the Government backed the unit of currency to a fixed ratio of gold to silver. The mint ratio would be fixed by the government at the particular exchange rate at that time in response to market forces. In the 18th century, when the bimetallic standard was first imposed, one ounce of gold was equal in value to 15 ounces of silver, and a 1:15 gold/silver ratio was implemented. However, a year later, the value of silver steadily declined and gold became more valuable. This pushed gold out of circulation since the owners of gold coins would rather save the gold currency that became more valuable rather than spend it. Following this, economists such as Milton Friedman argued against the bimetallic standard, wanting to abolish the bimetallic standard to increase the volatility of financial markets instead of locking in the price of gold and silver to a pre-established ratio. In 1873 with the establishment of the coinage act, entire countries started to pivot away from silver and adopt a gold standard instead. The bimetallic standard was abolished in favour of the gold standard, and the pre-established ratio between gold and silver was cancelled, allowing gold and silver to float freely in the market.
In 1819, Britain became the first country to officially adopt a gold standard. After a century of discoveries and an increase in global trade, increased production brought large quantities of gold which helped the gold standard remain intact until the next century. Under the gold standard, the value of a country’s currency is directly linked to gold and could be freely converted into fixed amounts of gold. International gold standards started to emerge in 1871 when it was adopted by Germany and by the beginning of the 1900s, the majority of the developed nations had implemented the gold standard to back their monetary system. The U.S. was one of the last countries to adopt the gold standard because strong silver lobbyists prevented gold from being the sole monetary system in America. Despite the new popularity of the gold standard, it was only in effect for a short time until it crumbled. With WWI, political alliances changed and government finances deteriorated, putting the gold standard in a state of limbo during the war. The financial events of WWI demonstrated to economists that the gold standard was not able to hold its weight in both good and bad times, drawing doubt to the state of the monetary system. Even after the war, the gold standard continued to lag behind the growth of the economy, and the British pound sterling and U.S. dollar began emerging as global reserve currencies instead. Britain stopped using the gold standard in 1931 and the U.S. followed and abolished the gold standard in 1933. Flash forward a few years, as WWII was coming to an end, leading Western powers developed the Bretton Woods agreement which would pave the way for the framework for the current global currency market. In 1971, the gold standard was completely abandoned and all national currencies were valued in relation to the U.S. dollar instead, which became the dominant reserve currency.
In the 21st century, gold is no longer a dominant form of currency. Fiat currency has completely overtaken gold in global markets. Financially, gold is mainly used as a form of investment to diversify risk or diversify investment portfolios. Gold, to many investors, is a key to grounding their investment portfolios through turbulent times. As a precious metal, gold price increases in response to events that would normally shake mainstream investments such as stocks or bonds, leading investors to turn to gold as a safe haven or hedge against inflation. Although the price of gold may seem volatile in the short term, gold holds its value long term and generally increases in value the longer you hold it. Investing in gold takes the form of gold bars or coins and out of all the precious metals, it is the most popular as an investment. Even though gold is no longer the dominant form of currency in the 21st century, it still has its uses in the financial world has its uses as an investment and will always have its roots and ties to money.
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