Gold Standard

Since the adoption of fiat money approximately two centuries ago, the monetary system has undergone great change. Paper money was – and still is – legal tender only by an act of the competent authority. It was issued in fixed units of national currency and had a clearly defined nominal value. For a long time, the nation states held gold reserves in their central banks to ensure the credibility of their currency – a system known as the Gold Standard. Currencies in the form of coins and fiduciary paper notes were convertible into gold at a fixed parity. The United Kingdom was effectively the first country to set up a gold standard in 1816, the exchange rate of pounds into gold having been determined in 1717 at 3.811 pounds sterling per ounce by Sir Isaac Newton himself. With the start of World War I, many countries began printing more and more money in order to finance the cost of the war. In Germany, for instance, the number of banknotes issued by the Reichsbank grew from 2,593 million in 1913 to a total of 92,844,720 billion banknotes in circulation on 18 November 1923. This ultimately led to hyperinflation. With more money circulating, most countries suspended the convertibility of their currencies into gold, as its increased quantity was no longer balanced by the national gold reserves. The Chinese began using paper money around 800 A. D. and continued to do so for several hundred years.

These days, various forms of intangible money have emerged, among them so-called “electronic money”.