This is the first part of a four part series about the history of gold as a means of payment, and also the development of the gold standards. The first three periods are the Classical Era, the Mediaeval Times and the Early Modern Times.
1. Ancient History and Classical Era
5,000 years ago in Egypt and the Middle East: gold and other metals fulfilled the classical function of money (exchange, means of payment, and value storage). However gold coins were not yet widely used in economic transactions.
In 560 BC, Lydian king Croesus: He produced for the world first standardized gold coins which were of the same size and value. The minted coins guaranteed, besides its propaganda function, the value and quality of the precious metal.
In 225 BC, the Roman Empire used the first gold coins: This was a response to the devaluation of their silver currency, which was caused by the Roman expansion. The reason was the oversupply of silver coming from the new Roman colonies. Roman gold coins (Solidus) remained the dominant currency of Europe, northern Africa and Asia Minor until the beginning of the 12th century.
2. Mediaeval Times
In the Middle Ages, silver as preferred coin metal: Gold was more and more used only as a value storage instead of a means of payment, as this metal was rarer and more valuable than silver. The crusades and the expanding long-distance trade helped to reintroduce gold as a means of payment. In Mediaeval Europe gold had a value of 10 to 12 times than that of silver.
In 1300 hallmarking: A system to check and guarantee the quality of gold was established in London, creating a common standard for gold purity.
In the 14th and 15th century increase of gold value: The reasons were the decline of European mining which led to a reduction in new gold supplies. During the same time, coin production decreased by 80%. This increased the gold price and lead to a continuous deflation.
3. Early Modern Times
Discovery, subjugation and plundering of America: The engagements in the New World brought in the 16th century large amounts of gold to Europe. The new gold supply first reversed deflation and later caused inflation first in Spain, later in the rest of Europe, and even in Asia.
Second half of the 16th century, gold coins further lost their value: This happened as gold coins were combined with other metals, such as copper, and became less pure. Further low-grade coins were brought into circulation due to the Seven Years War (1756–1763).
Fixed gold-silver conversion rate and gold standard: In the United Kingdom, Sir Isaac Newton, warden of the Royal Mint, determined the conversion rate of gold and silver. This helped to ease the big fluctuations of gold coins. In 1774 the British Parliament introduced the gold standard. Here the of the currency is determined by the gold reserves.
Bimetallism of the 18th and early 19th century: Other European countries and the United States minted at the same time gold and silver coins. The basis was a fixed conversion rate between these two metals. In France, starting in 1795, the rate was 15:1, meaning that gold has a 15 times higher value than silver.
As we have seen, gold was used as a means of payment already 5,000 years ago. During the history of mankind this precious metal competed with silver for the domination as coin material. In the Early Modern Times, a fixed silver-gold exchange rate was set and the gold standard was introduced to back and define the value of national currencies.
- History of Gold – Part 1: Ancient History, Mediaeval Times and Early Modern Times
- History of Gold – Part 2: Classical Gold Standard and Interwar Period
- History of Gold – Part 3: Bretton Woods System
- History of Gold – Part 4: Bull and Bear Markets