A week ago, we addressed the issue of mass money spoilage in Europe in the 18th century. You can find the entire text here. Just as night follows day, there were efforts to save currencies after this period. The so-called Gold Standard system was introduced. Gold Standard Gold Standard debuted as an idea in Great Britain. It's hard to talk about "debut", because it was in fact a creative development of the idea based on already mentioned in previous articles of this cycle receipts issued by jewelers when they accepted gold as a deposit. Eventually someone decided that the new money could be paper, but that it would actually be a representation of actual gold, which in turn is held in the central bank. Less wealthy countries slightly modified the idea of the United Kingdom and introduced bimetallism at home. Their currencies were backed by both gold and silver. As part of this, the Latin Monetary Union was founded. Eventually, however, the Gold Standard proved to be the best solution and at the beginning of the 20th century it was in force almost all over the world. Its functioning was ended only by World War I, but we will deal with that in a moment. The only countries to emerge from the Gold Standard system were those in Asia: China, British India and French Indochina. There, silver alone was used as the foundation of currencies. How did the Gold Standard System work? The international gold standard had a few advantages. First of all, it limited the monetary experiments of politicians. Economist David Hume explained this quite clearly. Suppose, for example, that some not very responsible country starts issuing banknotes in excess. The result? We have inflation, so prices rise. This stimulates imports, because it turns out that it is better to buy foreign goods than to pay for domestic ones. Besides, a jump in the prices of domestic products hits exports. So we have distorted international trade. We import more to our country than we sell to our neighbors. There is also a deficit in the balance of payments. Suddenly, it turns out that foreign recipients start exchanging our currency for gold. This threatens the outflow of bullion from our treasury. This cannot be allowed in the long run even by the most apodictic satrap. As a result, inflationary policy must be curtailed. The result is the opposite situation. Now it is we who sell more abroad, recover gold, etc. The cycle repeats itself, while the market almost regulates this rather complicated process by itself. Latin Monetary Union The aforementioned Latin Monetary Union included: Belgium, France, Switzerland and Italy. A few years after its foundation, Greece and informally Romania, Spain, Finland, Serbia and Bulgaria joined the union (they were not members but accepted its rules). Bimetallism was applied within the union. In practice, this forced member states to mint certain standard coins. The characteristic silver five-franc and two-franc coins were issued. However, the union was not well thought out. The Achilles' heel turned out to be the banknotes. In 1866, Italy suspended the convertibility of its "bank notes" into bullion. This occurred during the war, but convertibility was never restored after the war ended. Remember, politicians rarely back down from the favorable legislation they introduce during emergencies.... Unfortunately, the above trend was strengthening. In 1870. - also during a time of war - France did the same. Eventually, in 1878, the union collapsed. Scandinavian Monetary Union In the north of Europe, the Scandinavian Monetary Union was formed in turn. It was founded by Sweden and Denmark. After three years, Norway joined them. Here the basic unit was the gold crown. This system worked even more efficiently than the Latin Monetary Union, but it still collapsed after World War I. World War I We are slowly coming to the most tragic event of the beginning of the last century. We are talking about World War I, then still called the Great War (few thought that the world would live to see an overlap in the form of World War II, only two decades after the end of the first one). The conflict turned out to be the end of the Gold Standard. Why? To understand this we must grasp the genesis of this terrible global conflict. First, the outbreak of war in 1914 was quite unexpected. It was a so-called black swan. And this despite the fact that relations between the superpowers had been escalating for several years and the conflict could theoretically have happened much earlier. The assassination in Sarajevo was only the official reason - let us add that it was definitely not obvious, and even quite... stupid. In the background, however, the rivalry between the German Reich and Great Britain had been going on for several decades. It was about supremacy in Europe, but also about gaining colonies outside of it. Germany was growing intensively economically and needed more and more "its place under the sun". Despite this, the countries hoped for a short war - perhaps something like the conflict between Germany and France in 1870. In books and online, for example, one can find a picture of an exuberant crowd rejoicing at the start of
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