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I'm more than a bit skeptical of anything pre-1750 in that graph, because the "world's" reserve currency means something very different in today's global econom
by chimeracoder 11y ago
I'm more than a bit skeptical of anything pre-1750 in that graph, because the "world's" reserve currency means something very different in today's global economy than what that graph appears to be using to define them.
Those might pass for European reserve currencies in a pre-Industrial Era, but they certainly do not reflect the world economy of the time period by any means.
In addition to all of that, the USD is the only currency on that graph that was not on a gold standard at the time. That's a huge difference.
- mikeash 11y agoWouldn't the gold standard render the entire notion of a "reserve currency" meaningless, too? If you're holding a gold-backed currency then you're effectively just holding gold. Holding a currency as a "reserve currency" probably meant actually holding a bunch of gold in a vault. It hardly matters whose face was on it.
- chimeracoder 11y ago> Wouldn't the gold standard render the entire notion of a "reserve currency" meaningless, too? Yeah, it does. The more I think about it, the less sense that graph makes. It's not entirely meaningless because there are still benefits to being the reserve currency in a gold-backed world (e.g. cheaper cross-border transactions from not having to do any forex). But the biggest impact of being the reserve currency today is on monetary policy, which only makes sense in the context of fiat money.
- justincormack 11y agoNo, there was still credit creation under the gold standard, and debt markets and so on.
- jtc331 11y agoIf "gold standard" had one narrow definition (something like each printed currency unit is back by a specific amount of gold and that amount doesn't float), then yes, it would render it meaningless. But if the amount of currency issued can float relative to the gold reserves held, then the values of currencies relative to each other could still flow significantly. Put another way, it's an issue of trust. If currency X and currency Y are both theoretically backed by gold, but it's far easier or more reliable to convert X into gold than Y, then X as a reserve would be more valuable than Y.
- mikeash 11y agoFor most of the time covered by this graph, "gold standard" meant that the money was actually made out of precious metals, not merely that it had some official exchange rate with gold. Concerns about how the quantity of currency issued changes relative to the amount of gold held, or conversion to/from gold, simply wouldn't apply.
- justincormack 11y agoNot true, there was still debt, so unbacked money.
- mikeash 11y agoHow much of currency reserves at the time consisted of debt?
- justincormack 11y agoDepends when you were talking about exactly. Currency reserves were not necessarily a thing. In most countries all banks were private, so there were no official reserves. For example the Bank of England was only nationalised in 1946. Fractional reserve banking has been around for centuries.
- dools 11y agoAll a gold standard does is increase instability in the economy and reduce domestic policy space. It was abandoned for a very good reason, and typically would be abandoned often anyway even when it was "in effect". It's a ludicrous way to run an economy, similar to a pegged exchange rate.