A Brief History of World Currency

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Brief History Of Currency What You Should Know
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Brief History Of Currency
Here is a Brief History of Currency in The
World. I want to share the mistakes in the
global financial system from the past, and how it
reflects many important aspects of today's
monetary system.    - In 1921, Germany destroyed
its currency.   - In 1925, France, Belgium and
others did the same thing. But what was going on
at that time prior to World War I in 1914?
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The Gold Standard
For a long time before that, the world had been
on whats called the classical gold standard. If
you had a balance of payments, your deficit, you
paid for it in gold. And if you had a balance of
payment surplus, you acquired gold.  GOLD WAS
THE REGULATOR OF EXPANSION OR CONTRACTION OF
INDIVIDUAL ECONOMIES. You had to be productive,
and pursue your comparative advantage and have a
good business environment to actually get some
gold in the system or at least avoid losing the
gold you had. It was a very stable system that
promoted enormous growth and low inflation.
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System Ends In 1914
That system was torn up in 1914 because countries
needed to print money to fight World War I. When
World War I was over and the world entered the
early 1920s, countries wanted to go back to the
gold standard but they didnt quite know how to
do it. Before World War I started with parity,
meaning there was a certain amount of gold and a
certain amount of paper money backed by gold.  
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Paper Money Was Doubled
Then, the paper money supply was doubled. That
left only two choices if countries wanted to go
back to a gold standard. They couldve doubled
the price of gold basically cut the value of
their currency in half or they couldve cut the
money supply in half. They couldve done either
one but they had to get to the parity either at
the new level or the old level.  
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What France Did
WHAT FRANCE DID The French said, This is easy.
Were going to cut the value of the currency in
half. They did that. If you saw the Woody Allen
movie Midnight in Paris, it shows U.S. expatriate
living a very high lifestyle in France in
mid-1920s. That was true because of the
hyperinflation of France. It wasnt as bad as the
Weimar hyperinflation in Germany, but it was
pretty bad. If you had a modest amount of
dollars or gold, you could go to France and live
like a king.
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What The UK Did
WHAT THE U.K. DID The U.K. had the same decision
to make but they made it differently than France
did. There, instead of doubling the price of
gold, they cut their money supply in half. They
went back to the pre-World War I parity. That was
a decision made by Winston Churchill who was
Chancellor of Exchequer at that time. However,
when you doubled the money supply, regardless if
you did not like it, you have to own up to that
and recognize that youve trashed your
currency. Churchill felt duty-bound to live up to
the old value. He cut the money supply in half
and that threw the U.K. into a depression three
years ahead of the rest of the world.
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World Went Into Depression
While the rest of the world ran into the
depression in 1929, the U.K. started in
1926. Going back to gold at a much higher price
measured in sterling would have been the right
way to do it. Choosing the wrong price was a
contributor to the great depression. Economists
today say, We could never have a gold standard.
Dont you know that the gold standard caused the
great depression? Well, they are wrong. It was
a contributor to the great depression, but it was
not because of gold, it was because of the
price. Churchill picked the wrong price and that
was deflationary. And they continued down that
path until, finally, it was unbearable for the
U.K., and they devalued in 1931.
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Worst Depression In History
THE RESULT WAS, OF COURSE, ONE OF THE WORST
DEPRESSIONS IN WORLD HISTORY.
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Merging Gold and The Dollar
There was skyrocketing unemployment and crushed
industrial production that created a long period
of very weak to negative growth. And it was not
resolved until after World War II, at the Bretton
Woods conference where the world was put on a new
monetary standard.  Where almost every currency
on the planet was backed by the US dollar, and
the US dollar backed by gold, for a price of 35
dollar per ounce, giving confidence to all
currencies, and stability to the world
economy. This merge of world currencies to each
other through the dollar and then gold, make the
exchange rate fixed year after year.
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Lost Money
However, when Charles de Gaulle former president
of France realized that the US did not have the
gold to back all of the dollars in circulation,
because they had created and spent more than they
should have had in wars, public works and the
great society programs, he then started asking
for their gold back. Not long after France, and
other countries started to ask for their gold
back. And because the US lost about 50 of its
gold from 1959 to 1971, having 12 times more
dollars than gold, president Nixon unilaterally
terminated the convertibility of the US dollar to
gold and the US Dollar Standard started.
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Unemployment and Inflation
He did this to avoid a global economic collapse,
to create jobs and promote exports to help the
U.S. economy. But what actually happened
instead? We had three recessions back to back, in
1974, 1979 and 1980.   - The US stock market
crashed in 1974.   - Unemployment skyrocketed,
inflation flew out of control 1977 and 1981   -
The value of the dollar was cut in half.
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The Wrap Up
Again, whether you see this happening in our
economy today or not, the lesson here is that
governments and central banks, although well
intended, dont produce the results you
expect. Things like increased exports and jobs
and some growth. What they produce is extreme
deflation, extreme inflation, recession,
depression or economic catastrophe. Read full
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story-of-currency
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