Currency history
Money originated from ordinary barter, where goods exchanged for each other had no special importance and value. For the most part, the exchange was uneven, and society needed goods that could be used as a universal means of payment.
Soon, bronze, silver and gold acquired leading positions in bargaining because as compared to other goods they had quite a stable value. Initially, merchants melted metals in bars and disks, which they stamped indicating the weight and purity of metal, but after a while government authorities undertook those functions.
Before the 19th century silver and bimetal (metal alloy of silver and gold) currencies were in use. The decisive move towards making gold an international payment instrument occurred in 1696 when Great Britain switched from the silver standard to the gold standard while reminting old silver coins.
15 ounces of silver were set equal to 1 ounce of gold, undervalued silver coins were fully refused, or simply sent out of the country. Thus, gold gradually took the leading position in money circulation in England. In 1816, gold was declared "the only standard measure of value and legal means of payment with no restrictions on the amount of payment." In other countries, silver maintained a dominant position until Californian gold fields were discovered in the mid-19th century.
In the 18th century paper currency was widespread in Europe, although its origins date back to an earlier period. Scientists suggest that paper money was used by ancient Chinese merchants instead of gold. In Europe, the role of paper money was played by receipts for the deposit of goods and gold, which also lead to the creation of securities in the form of promissory notes. In 1716, John Loe, a Scotsman, became the Minister of Finance in France. In order to improve the financial well-being of the country he issued credit money in the form of banknotes. His project was a failure, but it was the first move to mass production and use of paper banknotes.
The main problem with the paper currency was its isolation from the actual gold, money was not supported by the necessary amount of precious metals. In gold and silver coins, the metal was their integral nature, i.e. money and metal were fused together and were inseparable. Paper currency as a commercial equivalent broke out from those most precious goods in which it had been realized for a long period of time. This created fertile ground for the overissuance of paper money that damaged their stability as a commercial equivalent.
At the onset of the 20th century, the international currency system was still pegged to gold. Due to the prolonged economic crises and World War II, in July 1944 in a place called Bretton Woods a meeting of the representatives of 41 countries was arranged. Its topic was "The reform of the traditional gold standard system of national currencies". As a result of this meeting, the US dollar along with gold became the reserve currency. One ounce was set equal to 35 dollars, the fluctuations of which America pledged to keep within +/-1%, while other countries have agreed to keep their currency fluctuations within +/- 1% of their nominal value.
