Gold Coin - Gold Standard's Rise and Fall

2023-09-13
Summary:

Gold coins' history is tied to Europe's monetary evolution. Explore this era, grasp their role in global trade and exchange rates.

The history of gold coins is closely related to the evolution of the European monetary system, from the silver standard to the gold and silver replica, and then to the gold standard. This historical process is full of twists and turns and inspiration. This article will take you back to this period of history and help you understand the role of gold coins in international trade and exchange rate systems.

Gold Coin

The European Commercial Revolution and the Rise of Gold Coins

From the millennium AD to the 18th century, before the Industrial Revolution in England, Europe experienced a period of commercial revolution. During this period, trade between the Middle East and North Africa led to the gradual influx of gold coins into Western Europe, which became the settlement currency for international trade. In 1252, merchants in Florence, Italy, created a gold coin specifically designed for international trade, called the "form Berlin", which promoted the development of international trade. Not only gold coins, but silver coins are also used as trade currencies, such as the word "yuan" on Spanish silver coins indicating its arrival in Yuan Dynasty China. These trade currencies are widely used due to their high value and standards, and they are actually the embryonic form of international currencies.


It should be noted that these gold trade coins are not legal tender as they do not have currency unit markings and are not circulating in daily life due to their high value. They are more like commodities, and their prices are completely influenced by the market supply and demand relationship. The prices of these trade coins are recorded in a reference manual for exchange rates in medieval Europe, which recorded the prices of gold and silver coins in various regions over several centuries.


The Rise of Gold and Silver Dungeons

As more and more countries begin to use high-standard gold coins, gold and silver replica bits have gradually become a weight standard for currency. For example, the symbol "f" for the Dutch guilder comes from "flower" (flower). Since the 17th century, some countries have started to use both gold and silver coins as legal tender, known as the gold and silver replica. This has, to some extent, disrupted the price fluctuations between gold and silver. In order for this system to operate successfully, the government needs to set a fixed exchange rate for gold and silver.


The Rise of the Gold Standard

However, there is a problem with the gold and silver replica slot, as the official exchange rates may vary among different countries, leading to the rupture of the gold and silver replica slot and ultimately leading to the disappearance of a metal currency from circulation. For example, suppose a country sets a gold to silver exchange ratio of 1:15, but in foreign markets, the gold to silver ratio is 1:16, which can lead to undervaluation of the country's gold coins and create arbitrage opportunities. People can exchange 1 gram of gold for 16 grams of silver and then use 15 grams of silver to mint 1 gram of silver coins, earning profits from it. If this price difference persists, all domestic gold coins may flow to foreign countries and eventually disappear.


The failure of the gold and silver replica position forced the country to return to the silver standard or adopt the gold standard and restore a fixed exchange rate. However, unexpectedly, the Western world chose the gold standard, despite its limited quantity and high value, making it unsuitable for daily small transactions. The UK was plagued by the issue of gold and silver replica slots in the second half of the 17th century, with silver continuously undervalued and flowing out of the UK in large quantities. This has resulted in almost no silver coins being available to the British, making small transactions difficult.


Small transaction assistance tools such as "subject memories" have emerged in society, which are often of poor quality, low gold content, and not even silver coins, similar to today's token coins. Then, paper money began to be used as tokens, but metal tokens still dominated. The arrival of the Industrial Revolution made complex coinage and printing techniques possible, making coins standardized and difficult to forge. Coins have effectively replaced silver coins, creating conditions for the implementation of the gold standard.


The collapse of the gold standard

However, the gold standard is not a long-term solution. The scarcity of metal currency leads to deflation, and the growth of the gold coin supply depends on the discovery of gold mines. Society is gradually realizing that the money supply needs more control rather than relying solely on the discovery of precious metal deposits. This led to the gradual shift of currency from gold and silver to credit, and the government and banks began to dominate currency creation, mastering the ability to manipulate the money supply.


In addition, the political and social changes between the gold and silver standards have had a profound impact on the monetary system.


One of the reasons for the collapse of the gold standard is the instability of gold and silver exchange prices internationally, which makes international capital flows very unstable and intergovernmental cooperation fragile. Governments of different countries have to make choices in monetary policy, resulting in difficulties in a fixed exchange rate system.


Ultimately, the transition from the silver standard to the gold standard has heralded the failure of the gold standard, with monetary policy becoming increasingly difficult to control and international capital flows becoming increasingly difficult to manage. This evolution has led people to question the feasibility of a fixed exchange rate system.


The history of gold coins is full of inspiration and warning. We can see the complex evolution of the monetary system and how political, social, and economic factors affect its development. The rise and collapse of the gold standard tell us that the essence of money is constantly changing, adapting to the needs of society and technological progress. Gold coins remain an important wealth storage tool, but the monetary system no longer relies on precious metals but is built on credit and government endorsement.


Disclaimer: This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by EBC or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

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