Monday, May 1, 2017

Silver, not gold, was the basis for monetary systems across the world including the U.S. and China

Despite the fact that the United States was primarily on a gold backed monetary system until 1973, and where it was also the foundation for a global monetary system through the Bretton Woods accords of 1946, an interesting piece of history shows that not only was the dollar originally created using the auspices of silver, but so was the Yuan, the Yen, British Pound, and most currencies used in Latin America.

When the Spanish owned claim to the entire new world thanks to Christopher Columbus and an agreement signed by the Pope, the output of silver generated from North, Central, and South America was so great that it usurped gold's longstanding position as the basis for money, and spread across the globe to become the foundation for many of Europe and Asia's currencies.

US-Trade$ 1873-1878
Hong Kong was a British colony from its founding in 1841 until its handover to China in 1997. But the Hong Kong dollar isn't derived from the British pound. It doesn't even come from the U.S. dollar. In fact, the Hong Kong dollar and the U.S. dollar are both derived from the same source: the Mexican or “Spanish” dollar. So were the yuan, the yen and most of the currencies of Latin America. 
The Mexican or “Spanish” dollar was in wide use from the 1500s until the middle of the nineteenth century. If not the first global currency, the Mexican dollar was at least the first Pacific currency. Divided into pieces of eight, it is the currency of pirate legends and songs. It was minted in Mexico starting in 1536 from silver mined in Central Europe, in northwestern Mexico, but most of all in the “silver mountain” of Potosí in today's Bolivia. 
For four hundreds of years the Mexican dollar was, if not quite “the world’s first global currency,” then at least the key lubricant that greased the wheels of the world's trade. Most world histories are written from an Anglo-American perspective, as if the Americas suddenly sprang onto the stage in 1776 and China in the 1840s. In reality, as Gordon and Morales write, Latin America and East Asia were already important parts of the global economy in the 1600s. 
Even if there is some truth to the claim that Britannia ruled the waves, the Mexican dollar ruled the ports—on both sides of the Pacific. The British couldn't even get their own colonists to use the pound. Hong Kong, Singapore, Australia and Canada (to say nothing of the United States and Latin America) all used the Mexican dollar. And after the Mexican dollar finally slipped from the scene in the nineteenth century, it was the U.S. dollar that replaced it, not the pound. 
But the key to it all, then and now, was China. For the hundred years from 1540–1640 China was the vast sink into which the world's silver drained. The newly globalizing world—Europeans, but also Ottomans, Indians and especially Americans—all wanted what China had to offer, porcelains and silks most of all. But Chinese merchants wanted only one thing from the rest of the world: money. And in sixteenth century China, money meant silver. - National Interest
So the next time an analyst suggests that the world's currencies need to return to a gold standard for monetary stability, remember that the greatest economic growth in history took place when much of the globe was using silver rather than gold as it primary form of money.

1 comments:

Uh, wrong, wrong, wrong...

The Coinage Act of April 2 1792 not only established the weight and purity of silver to define the dollar, but the quintessential ONE DOLLAR IS a measure of silver. Gold was only measured in $2.5, $5 and $10 units of gold.

Geez. Back to basics guys...

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