ZoneBitcoin EditorialGold is often considered the universal currency, a safe store of value that has stood the test of time.
But how did gold become a reserve currency? In this article, we'll explore the fascinating history of gold and analyze how it evolved to become a founding element of the global economy. We will also mention why bitcoin is also considered virtual gold.
The role of Gold in Ancient Egypt
Around 3000 BC, the ancient Egyptians had a diverse use of gold, which was considered a precious and sacred metal. They mainly used it as royal and religious ornamentation. Gold was widely used to adorn the temples, palaces and tombs of the pharaohs. Statues, wall ornaments, sarcophagi, and ritual objects were often covered in gold to symbolize divine power and wealth.
Likewise, gold was also used to make jewelry, such as necklaces, bracelets, earrings, and rings. This jewelry was worn by royals, priests, and other wealthy people.
At that time, the unit of measurement was the "deben" (ou tabonon), which weighed 91 grams. This relatively high weight meant that only high value trades were made in gold.
However, historians have not unanimously confirmed that the Egyptians paid with gold. The only certainty being the existence of this unit of measurement based on gold.
The first gold coins of Ancient Greece
The monetary history of gold reached a new milestone in 600 BC, when the first gold coins were minted in Lydia, a part of ancient Greece. There creseid is one of the oldest known pure gold coins. King Croesus of Lydia is often credited as the first to issue gold coins, giving rise to the famous expression "rich as Croesus".
The Roman Empire and commemorative coins
The Roman Empire also played a key role in the monetary history of gold. Roman emperors minted many gold and silver coins for trade and wars. It was also at this time that the first collectible coins appeared, commemorating the birthdays of emperors.
The Roman Solidus: Unit of account until the 13th century
The Solidus, a gold coin issued by Emperor Constantine of Rome in the 4th century, became the model for coins minted throughout Europe until the 13th century. The history of gold as money generally begins with the Roman Solidus. It was a currency which remained stable until Byzantium in the 11th century. It even became the basis of the monetary system of the Late Empire and the Byzantine Empire.
The creation of paper letters during the pre-industrial revolution
From the 13th century, European trade exploded. New gold coins emerged, such as the ducat of the Republic of Venice and the Florence florin, which became the reference currencies until the beginning of the 19th century and the Industrial Revolution.
The increase in the volume of trade led to the birth of travel letters of credit, in paper format. These Gold Letters of Credit were an acknowledgment of debt given by the banks to the owners of the gold to demonstrate that they had deposited the necessary funds for the transactions. In fact, letters of credit are particularly used in gold-related business transactions.
The Creation of the Gold Standard (early 19th century)
The gold standard was formally established in the 19th century, although earlier forms of linkages between currencies and gold existed. At this time when commercial relations were beginning to become international, the issuance of currency in each country had to be supported by a counterpart in gold.
Currency parities were fixed according to this gold standard. Gold has therefore become an international reference currency and a reserve currency for the central banks of countries which have adopted this gold standard.
The gold standard was officially introduced in Britain in 1821, during the reign of George IV. At that time, the pound sterling was tied to a fixed amount of gold, and other countries followed suit. This was particularly the case for France, which officially adopted the gold standard in 1870.
Finally, generally speaking, the period between 1870 and the outbreak of World War I in 1914 is often referred to as the era of the classical gold standard. Many countries adopted the gold standard as their monetary system during this period, which meant that monetary units were convertible into gold at fixed rates.
The suspension of the Gold Standard with the First World War
World War I led to the suspension of the gold standard in 1914. The warring countries had to mobilize enormous financial resources to finance the war, which led to massive budget deficits and a massive increase in debt public.
To finance these expenses, many countries abandoned the gold standard and began issuing currency not backed by gold, which led to a depreciation of national currencies. Central banks had to produce money without a gold counterpart to finance the war, leading to severe deflation and a decline in the value of gold.
In 1922, during the Genoa Accords, the gold standard was reestablished for those who had sufficient gold reserves. For others, the alternative reference currency has become the British pound or the dollar.
—> Read the article « Why Bitcoin can prevent the financing of wars?«
The Bretton Woods Agreement
In 1944, during the Bretton Woods Agreement, the American dollar became the world's reference currency. This agreement also allowed the creation of the International Monetary Fund (IMF) and the World Bank.
A new monetary system had just come into force. This was based on the stability of exchange rates and the convertibility of the US dollar into gold, thus establishing the dollar as the main global reserve currency.
However, over the decades, economic imbalances and inflationary pressures have undermined the Bretton Woods system. In 1971, US President Richard Nixon unilaterally announced the suspension of convertibility of the dollar in gold, marking the end of the Bretton Woods system and paving the way for a regime of floating exchange rates.
—> Read the article « Understanding the exorbitant privilege of the American Dollar?«
Gold as a “safe haven”
Today, gold is considered a hedge against currency crises and inflation. Typically, it is referred to as a "safe haven". Gold is often used to diversify an investment portfolio and is also considered a store of value.
Is bitcoin considered a safe haven like gold?
Bitcoin has emerged as a form of decentralized digital currency that shares some similarities with gold as a store of value. Like gold, Bitcoin is limited in quantity, with a hard cap of 21 million units, prompting comparisons to the physical scarcity of gold.
Some investors and analysts describe Bitcoin as “digital gold” or an alternative store of value, due to its unregulated nature, lack of government oversight, and resistance to inflation. Just as gold has historically been used as a form of protection against economic uncertainty, some view Bitcoin as a “safe haven” in a volatile financial world.
Bitcoin's volatility and lack of regulation pose challenges to its widespread adoption as a global reserve currency.
Final word
In conclusion, gold has a long history as a reserve currency. From ancient Egypt to the present day, gold has played a vital role in the global economy. Its intrinsic value and scarcity make it a reliable and safe reserve currency. However, its use as such largely depends on people's trust in it and the stability of the global monetary system.
For many people today, bitcoin is considered a hard money (sound money) which approaches gold as a store of value.
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