In our story, we enter the nineteenth and twentieth centuries.
The decision of the British influenced the further development of the money. This was mainly dictated by their role as a leader in the then, nineteenth-century world. In 1821, the pound became a golden currency. In spite of this, in 1844, they began to leave. The Peel Bank Charter Act established the rules for the new functioning of the currency. 14 million pounds in circulation did not have to be covered in gold. However, each issue above this value required already having the right amount of gold. This record was a pick-button, which then turned into a crowbar, a crushing padlock blocking access to fully fiat money.
Let’s move to the other hemisphere – to Canada. There, in the mid-19th century, nearly 200 commercial banks issued their own banknotes. In 1841, the government wanted to take this privilege and seize it only for itself, which, however, by the banks’ opposition, eventually failed. It was not until 1857 that the dollar became a Canadian unit of account. Ten years later, the Canadian and American dollar were leveled.
From American experience, it is worth distinguishing the fight for the decentralization of banking. There were thousands of small commercial banks in the United States. The central bank’s concept was also fought for a long time. It was only in 1900 that the Gold Standard was adopted there, and thirteen years later the Federal Reserve System (FED) was established.
Smaller issuing banks also operated in France for a long time. Finally, in 1848, they were all incorporated into the Banque de France, thus creating a central bank with a monopoly on the issue of money.
Although Germany united in one political organism in 1870, the economic and monetary unification of these lands had already preceded it. In 1834, the German Customs Union was established, three years later the monetary union. It was not until 1873 that the common currency for Germany was a brand issued by the Reich Bank and which had gold cover.
The situation was similar in Switzerland, where until the mid-19th century every canton had a different currency. In 1850, the Swiss franc was issued.
But let’s also look at Japan, where decentralized solutions also dominated until the end of the 17th century. It was not until the government of Toyotomi Hideyoshi that a unified currency system was created. It was based on four exchange measures: rice, gold, silver and copper. Paper certificates confirming the possession of rice and silver were also in circulation. Silver grew in importance, which in 1870 became the basis for the yen.
In fact, in most countries the process was similar. Departure from decentralized issuance banking and this government (and more specifically central banks) took on the issue of currencies that began to apply throughout the country.
World War I
We are slowly coming to an armed conflict that has revolutionized the market, the economy and the issue of currencies. World War I led to the suspension of convertibility of money into gold, mostly involved in the armed forces of countries.
Why? We must remember that the states that got involved in the war counted on the fact that it would be a short conflict. Oh, almost an adventure, not a war. As we know it has become quite different. World War I lasted four years and ended with a real revolution.
Money emission was increased to cover budget expenses. Because the destructive effects of such action were counted, efforts were made to increase not so much the issue of banknotes as tickets with the state guarantee. And so the Bank of England issued such low-denomination tickets; The US has put into circulation special certificates; in Russia cash tickets were produced, whose lowest denominations were made from … postage stamps. Germans also broadcast notegels, ie local currencies.
We must also understand that the other reason for suspending the exchange of banknotes into gold was the fear of taking over the ore by hostile states. It also had side-effects for neutral Sweden, which received so much gold from the fighting countries (it was a safe place to store gold), that it led to an increase in money emission and price increases.
Thus, the war was financed by the excessive issuance of banknotes. Attempts were made to limit inflation by blocking prices, ie setting prices down. Economics, however, can not be so easily deceived (as experienced by Emperor Diocletian in one of the first parts of our cycle) and the result was the disappearance of goods from the market.
The real effects of this policy were experienced only after the war.