They say that money makes the world go round. But how does it work, and how has it changed over time? While developing the ECO Coin, we’ve been thinking a great deal of money, past and present. From the origins of civilization up to present day, economy has gone through countless shakeups, and yet we tend to take our current way of thinking about money for granted. Welcome to the third part of The Story of Money: Gold.
No doubt you’ve heard of the gold standard, the monetary system in which value was measured against gold. But where does this reliance on gold come from? The first coins, used in China, were in fact made of bronze. They were originally not round but modelled after shells, knives, spades and other recognizable objects. Only later they were made circular - and then with a hole in the middle so that they could be worn on a necklace.
But bronze was a common material, and elsewhere in the world people felt the need to make their money out of something more precious. This is where gold, along with silver and other precious metals, comes in. Gold began to be used for the making of coins, and with its natural scarcity, governments did not have to fear inflation from its being too common.
The use of gold as an official standard for all currency, however, comes later. After the colonization of the new world, European settlers discovered that there was a great deal more gold to be found in the Americas than they had access to at home. The British led the way in imposing a gold standard whereby the nation’s economic life rested on its gold reserve as a standard of measurement. Other countries, including France, Germany and the USA, followed suit.
However, as economies declined during the First World War and the Great Depression, living up to this standard became increasingly difficult. The gold standard was initially modified and eventually removed in all countries where it had previously been effective. And though some still advocate for a return to this gold standard, the general economic consensus is that such a return would not bring any real benefits. The era of gold seems to be over for good.
Next week: Paper
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