"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. 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.
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.
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
|
Destroyed by hyperinflation in 1992
|
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.
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%!
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!
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.
|
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. 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.
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. ShareThis
Notes
The very first historical use of
paper money is believed to have occurred in 140 A.D., shortly after the
Chinese discovery of paper in 105 A.D. How this money came to an end is not
known.
Many of the early paper
currencies (likely to number in the many hundreds) of medieval Asia (China, India,
Japan, Korea and Persia) as well as the majority of paper currencies that
existed in China until 1935 are not included due to lack of historical
information.
It should be noted that many of
the curencies listed as being destroyed by war in this article also underwent
hyperinflation.
Mike Hewitt
DollarDaze.org
Mike Hewitt is the editor of DollarDaze.org, a website pertaining to commentary on the
instability of the global fiat monetary system and investment strategies on
mining companies.
Information contained herein is obtained from
sources believed to be reliable, but its accuracy cannot be guaranteed. It is
not intended to constitute individual investment advice and is not designed
to meet your personal financial situation. The opinions expressed herein are
those of the author and are
subject to change without notice. The information herein may become outdated
and there is no obligation to update any such information. The author, 24hGold, entities in which they have an
interest, family and associates may from time to time have positions in the
securities or commodities discussed. No part of this publication can be
reproduced without the written consent of the author.
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