http://dollardaze.org/blog/?post_id=00405
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.
Currency
Inception
Years of Circulation
Status
*Not officially recognized or valued outside issuing region.
As of January 7, 2009 it now takes 81.8 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 defined as 371.25
grains of silver. There are 480 grains in a troy ounce. Thus it took 1.3
US dollars to purchase a single troy ounce of pure siver. As of January
7, 2009 the price of a troy ounce of silver is US$11.22, representing a
89.5% drop in value!
The following table below groups the fates of these currencies.
Currency was... No. Of Currencies Description
The Second World War saw at least 95 currencies vanish as nations were conquered and liberated.
Hyperinflation is one of the greatest calamities to strike a nation.3 This devastating process has destroyed currencies in the United States, France, Germany, and many other countries.
Up until August 2008, the portion of the monetary base that consisted
of bank reserves was between 8 - 12%. In December 2008, that proportion
had risen to 47%! This drastic increase was due largely in part by the
unwillingness of the banks to lend recent 'liquidity injections' from
the Federal Reserve.
The following table shows the increases to the monetary base, as measured in US$ 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
In 1020, vast amounts were created to buy off potential invaders from the north leading to their rapid depreciation. In 1023 these notes were withdrawn, and only official notes printed by the government were allowed. The money issued by this bank was dated and had printed on it a notice stating it was valid for three years. Expiring notes could be exchanged for new ones at a 3% charge.
Problems of over-issuance of currency lead to high prices during the Chin (1115-1234) dynasty. Various schemes were adopted based on the government monopoly on tea and salt, but all failed from lack of commitment and increasing costs of war with the Mongols. In 1160, Emperor Kao Tsung reformed the Chinese paper currency as earlier issues had been excessive and became nearly worthless. A new issue was produced, but hyperinflation resumed by 1166.
In 1217, the Mongols successfully invaded from the north. The Mongol empire issued paper money on a moderate scale in 1236, known as the First Mongol Issue. By 1260, the Mongol note circulation reached a substantial level.
The Yuan (1264-1368) dynasty forbid the use of gold and silver as currency and demanded that a certain percentage of taxes be paid using paper money. Excessive printing year after year soon flooded the market with depreciated paper money until the face value of each certificate bore little or no relation to its counterpart in silver. In 1272 a series of new issues were put in circulation at a conversion rate of five old notes to one new one. This became known as the Second Mongol Issue.
When Marco Polo visited China (1275-1292, he was so impressed by paper money that he wrote a whole chapter in his Travels, describing everything about its manufacture and circulation. He described the manner in which it was issued:
He wrote that the emperor of China made so many notes each year that
he could buy the whole treasure of the world, 'though it costs him
nothing'. When Marco Polo returned to Europe in 1296 people met his
comments regarding Chinese paper money with unbelief and rejection.
While Marco Polo reported relative success of the Chinese monetary system in Europe, continued depreciation required another revaluation in 1309. The Third Mongol Issue followed the same 5:1 ratio of its predecessors. In an effort to reduce the amount of notes in circulation the government often refused to exchange new issues for old certificates that had been worn out through use.
Around 1350, during the final phase of the Mongol dynasty, huge efforts were made to correct the currency. Paper notes issued by private, provincial and central government agencies had resulted in an explosion in credit and subsequent precipitous fall in its value.
In 1374, the new Ming dynasty issued it first paper money, known as Ta Ming T'ung Hsisng Pao Ch'ao ("Great Ming Precious Notes"). These notes were inconvertible to coin and little effort was made to maintain its value. Six different issues are known to have occurred between 1368-1426 although it is likely that there were many more.
The Fate of Paper Money
"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.
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.
| 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) |
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 January 7, 2009 it now takes 81.8 GBP to purchase that same troy pound of sterling silver - a loss of 98.8%!
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!2The 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. |
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.
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.
Notes
1 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.
2 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.
3 It should be noted that many of the curencies listed as being destroyed by war in this article also underwent hyperinflation.
Published on DollarDaze.org - Jan 7, 2009.China's First Experience with Paper Money
Paper, one of the four Great Inventions by the Ancient Chinese along
with printing, the compass and gun powder, was invented by Cai Lun in
105 A.D. from bark, rags, wheat stalks and other materials. The first
historical use with paper money began shortly thereafter around 140
A.D., nearly 1800 years before its arrival in Europe. How this money
came to an end is not known.
The first well-documented use of paper money is with the "flying
cash" of the Tang (618-907) dynasty used around 800 A.D. The term
"flying cash" was used because of its tendency to blow away in the wind
unlike metal coins, known as cash. The
government issued the paper in lieu of coins to remove the burden of
moving large quantities of metal over vast distances. It was not a
'legal tender' but merchants did begin using them as a convenient method
of exchange.
This practice expanded during the S'ung (960-1279) dynasty to include
paper certificates issued by up to sixteen note-issuing houses. Each
note had pictures of houses, trees and people on it using a mix of red
and black inks with a seal of the issuing-house and confidential marks
to make counterfeiting difficult. Widely circulated, they were readily
accepted for the payment in debt and other financial obligations.In 1020, vast amounts were created to buy off potential invaders from the north leading to their rapid depreciation. In 1023 these notes were withdrawn, and only official notes printed by the government were allowed. The money issued by this bank was dated and had printed on it a notice stating it was valid for three years. Expiring notes could be exchanged for new ones at a 3% charge.
Problems of over-issuance of currency lead to high prices during the Chin (1115-1234) dynasty. Various schemes were adopted based on the government monopoly on tea and salt, but all failed from lack of commitment and increasing costs of war with the Mongols. In 1160, Emperor Kao Tsung reformed the Chinese paper currency as earlier issues had been excessive and became nearly worthless. A new issue was produced, but hyperinflation resumed by 1166.
In 1217, the Mongols successfully invaded from the north. The Mongol empire issued paper money on a moderate scale in 1236, known as the First Mongol Issue. By 1260, the Mongol note circulation reached a substantial level.
The Yuan (1264-1368) dynasty forbid the use of gold and silver as currency and demanded that a certain percentage of taxes be paid using paper money. Excessive printing year after year soon flooded the market with depreciated paper money until the face value of each certificate bore little or no relation to its counterpart in silver. In 1272 a series of new issues were put in circulation at a conversion rate of five old notes to one new one. This became known as the Second Mongol Issue.
When Marco Polo visited China (1275-1292, he was so impressed by paper money that he wrote a whole chapter in his Travels, describing everything about its manufacture and circulation. He described the manner in which it was issued:
"All these pieces of paper are issued with as much
solemnity and authority as if they were of pure gold or silver; and on
every piece a variety of officials, whose duty it is, have to write
their names, and to put their seals. And when all is duly prepared, the
chief officer deputed by the Khan smears the Seal entrusted to him with
vermilion, and impresses it on the paper, so that the form of the Seal
remains printed upon it in red; the Money is then authentic. Anyone
forging it would be punished with death."
While Marco Polo reported relative success of the Chinese monetary system in Europe, continued depreciation required another revaluation in 1309. The Third Mongol Issue followed the same 5:1 ratio of its predecessors. In an effort to reduce the amount of notes in circulation the government often refused to exchange new issues for old certificates that had been worn out through use.
Around 1350, during the final phase of the Mongol dynasty, huge efforts were made to correct the currency. Paper notes issued by private, provincial and central government agencies had resulted in an explosion in credit and subsequent precipitous fall in its value.
In 1374, the new Ming dynasty issued it first paper money, known as Ta Ming T'ung Hsisng Pao Ch'ao ("Great Ming Precious Notes"). These notes were inconvertible to coin and little effort was made to maintain its value. Six different issues are known to have occurred between 1368-1426 although it is likely that there were many more.
Figure 1. A Ming dynasty 200 cash note. The pictorial presentation is of two strings of ten 10 cash
coins. The lower panel text reads: "The Board of Revenue, having
petitioned and received the imperial sanction, prints the Great Ming
Precious Note, to be current and to be used as standard copper cash. The counterfeiter shall be decapitated. The informant shall be rewarded with 250 taels of silver, and in addition shall be given the entire property of the criminal."
The value of these notes rapidly declined and by the early 15th
century, the ratio between the paper and coin exceeded 300:1. The Great
Ming Precious Notes eventually disappeared from commerce and there are
no known references to paper money being in circulation after 1455 thus
ending China's first 650 years of experience with paper money.
For the next 500 years China functioned under a silver economy that
ended following Chiang Kai-shek's rise to power in 1927 and formation of
a Central Bank (click here for more).
Published on http://DollarDaze.org - Jul 20, 2008.