Find the Introduction HERE
Part 2 – Barter HERE
Part 3 – Minting, Paper Money & Kingdom of Mali HERE
From 1300 to 1500 saw the emergence of the modern Grand Private Banks :
- Italy → Medici Family
- France → Jacques Coeur
- Holy Roman Empire Germanic → Fugger Family
At that time, these Great Families were rather considered as Traders, who mainly practiced Exchange Operations, because of the strong pressure of Religions on the banking system.
In 1309, the First Stock Exchange was created in Bruges (today’s Belgium) to facilitate the exchange of financial securities and to bring buyers and sellers together in one place.
- La Bourse du Commerce was created in France (Lyon) in 1540.
- The Stock Exchange in England (Jonathan’s Coffee House in London) in 1698.
- The New York Stock Exchange (NYSE) was founded in 1742, better known as Wall Street, and is today the world’s largest Stock Exchange.
- The Dow Jones was created in 1896.
This same period is a prosperous one for Europe and its economy. Following two Centuries of evolution and technical innovations, the economy is hampered by various events:
- Global warming
- Crisis in Agricultural Production (Great Famine 1314 – 1317)
- Destruction of Agricultural Land due to the Wars
- Various epidemics (including Black Death 1347 – 1351)
Private banks are going bankrupt, the States are on the verge of bankruptcy, but this still allows salaries to increase (because the workforce was less numerous).
Nicolas Oresme, author of the “Traité des Monnaies” between 1355 and 1366 submits the idea that: “All monetary manipulations (modification of the metal content of Currencies) causes prices to rise and destroys confidence in exchanges“. This Traité will then become the forerunner manual of Political Economy.
The following Century is the starting point of Globalization, strongly developing trade between the Continents (but also Triangular Trade).
- Christopher Columbus discovers America in 1492
- Vasco de Gama opens the Route of the Indies in 1498
The Doctrine of Mercantilism made its appearance between the 15th and 16th Centuries: Exports are the factors of enrichment of a country, especially for the precious metals that these exchanges bring.
1545: Spain exploits the Silver mines of Potosi (present-day Bolivia), resulting in an influx of precious metals (30,000 tons of Silver) to Europe and Asia.
1636 – 1637: First ‘Speculative Bubble’ on the Tulip in the Netherlands.
The first Central Bank was created on September 17, 1668, in Sweden. The ‘States Bank of the Kingdom‘ (currently the Bank of Sweden – Riksbanken) in Stockholm. It obtained the status of Central Bank in 1897, and in 1904 the exclusive right to issue Swedish Banknotes and Currencies. The Bank of England was created in 1694, the Bank of France in 1800 and the Bank of America in 1929.
These Central Banks are different from other so-called “Commercial Banks” (a term still used today) because they gradually obtain the exclusive monopoly of issuing Banknotes and Currency in a given territory. Whereas Commercial Banks can still produce Scriptural Money.
The Scriptural Money is a written Money, which does not exist, today the Scriptural Money represents 90% of the Money Mass. It represents the money deposited in current accounts, checking accounts and bank credits, popularized by the scriptural means of payment:
- Bank transfer
- Direct Debit
- Cards …
This Money can nevertheless be converted into Coins or Banknotes.
The first Metallic Currency in North America was issued in 1652, by the Colonial Government of Massachusetts, while Paper Money was produced as early as 1690, and was initially printed in Pound Sterling (£) (The Dollar was the Official Currency one hundred years later).
In 1741 the Archduchess of Austria and Queen of Hungary, Maria Theresa of Habsburg had a new Currency Minted in her effigy, the Thaler. This currency was quickly adopted by the Spanish and English colonists of America. The Thaler is the first metallic coin used internationally. It will be used until the 1960s on all continents, the last minted Coins put into circulation date from 1780 (year of Maria Theresa of Habsburg’s death).
The Check was created in England in 1742. While the Bank of England was the only one to be able to issue Banknotes and Money, the English Bankers invented this deferred means of payment.
On April 2, 1792, U.S. President George Washington promulgated a Law making the Dollar the Official Currency of the United States under the ‘Mint Act‘. The Act also authorized construction of a Mint Building in Philadelphia, which was the only establishment authorized to produce metal coins (at the time).
For the record, it seems that the word ‘Dollar’ is a phonetic distortion of the ‘Thaler’ of Maria Theresa of Habsburg. By abandoning the Pound Sterling, following violent riots in Boston Harbour, which forced the Americans to turn their backs on the British and their currency (Pound Sterling £), they opted for the Dollar.
In 1817 the British economist and philosopher David Ricardo published the work “Principles of Political Economy and Taxation” and quotes: “The value of all goods lies in their scarcity and the amount of labor needed to produce them“.
In 1844 in England, the “Bank Charter Act” aimed at limiting the money supply, and imposed the “Currency Principle” according to which the issue of Bank Notes must be proportional to the quantity of Gold held in the reserves. Giving more powers to the Central Banks (as no other bank had the right to issue Bank Notes), which aims at avoiding inflation. This led to the introduction of the Gold Standard.
From 1860 it was also possible to send Money by Telegraph (whose first use dates back to 1844), but due to the complexity of the transactions, and especially the difficulty of the Banks to manage the funds, this means of Money transfer was quickly abandoned, it was the “New York & Western Union Telegraph Company” which proposed this service. Western Union still exists and still offers long distance money transfer services.
In 1862 the ‘Bureau of Engraving and Printing‘ was founded in the United States, and the very first American Money Paper was printed, in green.
1873 – 1900: The ‘Coinage Act‘ was introduced in 1873, the United States Congress wanted to put an end to the depreciation of the Currency, especially after the opening of the huge Comstock Lode Silver Mine, Silver became very abundant, many Silver coins had a lower value compared to the weight of metal they contained. But following the instability resulting from this law (deflationary policy and decrease in the quantity of Money), the United States adopted the ‘Gold Standard Act‘ in 1900 and thus established the Gold Standard.
1890: The ‘Sherman Antitrust Act‘ prohibits any contract, arrangement or understanding between various parties to restrict trade or monopoly. This marks the birth of modern competition law.
Following the Banking Panic in the USA in 1907 (leading to the fall of the stock markets by almost 50% and the rescue of the economy by Banker J.P. Morgan, who drew on his own funds to restore confidence in the financial system) it becomes necessary to centralize the issuance of the Currency. In 1913 the ‘Owen-Glass Federal Reserve Act‘ created the Federal Reserve Bank → the FED.
1922 – 1923: Hyperinflation in Germany: The massive printing of Banknotes, to pay striking employees, discredited the German Currency on the Financial Markets, the price increase became uncontrollable.
- 1921: + 60%
- 1922: + 5200%
- End 1923: + 16 580 000% (a product sold 1 Mark on January 1st, was sold 165 800 Marks at the end of the year)
This phenomenon is due to the more than abusive use of the Policy of the Banknotes Board, because it was not only the Reichsbank that could print Banknotes, but any large company. In 1923 Hjalmar Schacht introduced drastic measures:
- Prohibiting private agents from printing Banknotes
- Strict limitation of Bank Credits (to reduce the money supply in circulation).
Hyperinflation disappeared in 1924, and confidence in the economy was restored. A new Currency is thus created: the Reichmark. Since those prosperous years of recent German history, which have left deep scars (ruin of many citizens), Germans still show a severe mistrust towards any ‘Easy Money Monetary Policy’.
1932: Appearance of the First Parallel Currency. It is in Austria, in Tyrol and more precisely in the commune of Wörgl, that this brand new form of Currency is set up. It was designed to lose 1% of its value each month. This Currency was born from the idea to find an alternative, following the Great Depression (initiated by the Stock Exchange crash of October 1929) and to incite people to use the Money again, and to trust the system again. This new form of Currency was a great success, so much so that other municipalities also wanted to develop their own parallel currency, but the Wörgl was banned in 1933 by the Administrative Court.
In 1934, a similar idea came up in Switzerland with the ‘WIR‘ (a Parallel Currency to compensate for the lack of liquidity), this currency is still in circulation in this country, but on a very small scale.
The Austrian Professor of Political Science, Joseph Aloïs Schumpeter, became famous in 1942 with this expression from ‘Creative Destruction‘:
“A major innovation generates a phase of growth, synonymous with job creation, then some companies go bankrupt because their techniques or products have become obsolete, which causes a phase of depression, this phase of financial difficulty, however, arouses the creative imagination of new entrepreneurs, therefore new innovations and a new phase of growth“.
In 1956 the American economist Milton Friedman put forward the theory that “Prices vary proportionally to the quantity of the Money. Inflation is everywhere and is a monetary phenomenon“.
The first general-purpose Credit Card was launched in 1966. The Interbank Association, a grouping of 14 major American Banks launched this brand new financial product. (Other projects had already emerged since the 1950s, but too limited in the types of transactions).
In 1971, this year marked the end of the Bretton Woods System (financial agreements concluded in 1944 between 44 countries, and the birth of the IMF – International Monetary Fund – and the World Bank). While the U.S. Dollar is the last (world) Currency convertible into Gold, President Richard Nixon decides to suspend this convertibility (it will never be re-established) and the Gold Standard is also abandoned. Since the 1960s, the exit of American Capital has accelerated, as well as foreign investments, military and economic aid from abroad. This situation no longer allows the US Dollar to maintain parity on the basis of 1:35 → $35/oz (measure defined in 1934).
In 1976, the Jamaica Accords officially validated the abandonment of any reference to Gold in an international monetary system. From then on, the price of Currencies varies daily on the foreign exchange markets, according to the Law of Supply and Demand. Thus validating the ‘Floating Exchange‘ that has been in effect since 1973.
The WTO (World Trade Organization) was created in 1995 to establish the rules governing international trade. – China became a member in 2001.
1998: Creation of the European Central Bank (ECB), its mission is to maintain price stability in the EuroZone, and the Eurosystem which is the monetary authority of the EuroZone.
Creation of the G20 in 1999. This governmental body brings together the 20 largest economies in the world, representing about 90% of the world’s GDP (Gross Domestic Product).
2007, the year that marked the beginning of the subprime crisis. Due to the inability of ‘poor’ creditors (as opposed to ‘primes’ loans for the richest) to repay their debts, the balance sheets of financial institutions became fragile.
In 2008 Banks went bankrupt (including Lehman Brothers), then the stock markets panicked, with the largest capitalizations losing nearly 50% compared to the same period in 2007. The drying up of credit then initiated an economic crisis.
2009: Birth of Bitcoin (BTC), the first of the Cryptocurrencies. In 2021 it begins the year with a market capitalization of more than 600 billion US dollars.
Thank you all for taking the time to immerse yourself in this long history.
Feel free to tell me in comment if you have encountered any errors or omissions.
Thanks to all of you
See you soon
© Bitcoin Meister