In prehistoric times, people did not know the concept of currency. Cows and goats do not have the same value as today. People exchange one item for another item as a means of meeting needs, or what is called barter. The problem is, if someone trades 10 goats for 5 cows, he has to find a place to keep the cows. With its large size, it is clear that the cow does not fit in a pocket. Something has to be changed.
MESOPOTAMIA
The concept of new urbanization began to appear in Mesopotamia in 5300 BC. The wealth of the community at that time was assessed from agricultural products - especially wheat. The grain was stored in the barn, and when people wanted to store their grain, they were given a kind of receipt - the receipt was in the form of a piece of metal.
In 3000 BC, this resi evolved into the shekel, a measuring device for barley. Shekels can be exchanged for precious metals, such as gold and silver. Then in 1700 BC, based on Hammurabi's Law, an official law was made in Mesopotamia. This law contains rules about the use of exchange (currency) in Mesopotamia. The concept of money was born.
COINS
The main problem that came from the early era of convertibles was that there was no standard measure to determine their value. A piece of gold can be large or small, so there is no definite standard to determine the value of the exchanged item.
Coins overcome this problem. Coins have a weight and size standard, in addition, there is a stamp with a symbol from each country to prove the coin's authenticity. The first standardized metal coins appeared in Greece in the seventh century BC.
GOLD STANDARD SYSTEM
Coins were valued by weight until the early 17th century; The gulden or Dutch guilder has its own weight standard, and the French franc has a different standard.
However, along with the development of transactions, the use of coins is increasingly impractical. Banks began issuing money in larger units, using cheap materials such as paper. Physical money no longer has intrinsic value, instead, physical money can be exchanged for gold or other precious metals at the bank.
After the Napoleonic wars in 1803-1825, a number of countries fixed the value of their currency based on gold, and the government guaranteed the conversion of the currency with a certain amount of gold, and vice versa. Currencies can now be exchanged according to their fixed value. This is what is meant by the gold standard system.
WORLD WAR
The gold standard system continued to be used until World War I. At this time, there was concern about the ability and willingness of some countries to redeem their paper money with gold. Not many countries have enough gold reserves.
It was the chaos of World War I that ended the gold standard system, and there was no replacement until 1944.
Although the gold standard system was no longer used, several international financial institutions began to emerge during the period of World War I. One of the most powerful is the Bank for International Settlement (BIS), which was established in Basel in 1930. The function of the BIS is to help countries that do not have a mature financial system, or countries that have a deficit in their financial balance. .
1944
In 1944, delegations from 44 allied countries met in the United States at Bretton Woods. Famous economic figures such as John Maynard and Harry Dexter White worked together to create a new global financial system, so that the countries that were destroyed after the war could rise again.
The Bretton Woods Agreement was signed in July, 1944 with the following negotiation results:
1. The establishment of the International Monetary Fund.
2. Countries that cooperate with the IMF can get loans for stabilization.
3. The US dollar and the British pound were announced as international reserve currencies.
4. The currency exchange rate is set against the US Dollar, with only a 1% difference allowed.
5. The value of the US Dollar is fixed against gold.
6. Countries can only change the exchange rate of their currency based on permission from the IMF.
7. Currencies around the world can be exchanged.
8. The government is required to have foreign exchange reserves and intervene in the currency market.
9. Countries that want to join the IMF are required to pay a fee in the form of gold and national currency.
1947
After World War II, the United States was very worried about Europe's ability to resist Soviet Communism. In 1947, the European Recovery Plan, better known as the Marshall Plan, was finally established, named after the US Secretary of State, George Marshall.
For more than 4 years, European countries received almost $13 billion under the appeal of the Marshall Plan, enabling them to buy whatever they needed to get back on their feet.
1964
In 1964, Japan made the yen a convertible currency. With so many major countries' currencies becoming convertible currencies, the United States is clearly unable to support a fixed dollar rate against gold.
Inflation of the US Dollar becomes a big enough issue, the US administration takes steps to control US dollar transactions through taxation and exchange differences. Costs increased for foreign borrowers, leading to the creation of a new Eurodollar market.
1967
Britain's balance sheet worsened in the 1960s, and their gold reserves declined from $18 Billion to $11 Billion. In 1967, Great Britain had to devalue the pound, which was a big blow to Bretton Woods. At the same time, the debts of the United States continued to increase.
1970
In 1970, interest rates in the United States dropped sharply. Investors move their capital to Europe, where interest rates are higher. The year 1970 was the year of the worst US dollar crisis to date.
1971
The events that occurred in 1971 are as follows:
1. In May, Germany and the Netherlands allowed open transactions of their currencies.
2. In August, the United States' financial balance deficit reached crisis point and President Nixon responded by stopping the conversion of the US dollar to gold.
In December, the problem began to reach its peak:
1. A final effort was made to save the Bretton Woods system in a meeting at the Smithsonian Institute in Washington.
2. Exchange rates are allowed to deviate up to 4.5% from the established standard.
3. The central bank intervened massively in the currency market – including $5 Billion from the Bundesbank.
4. Course cannot be controlled despite intervention.
5. Currency exchange in Europe and Japan is temporarily suspended.
6. The United States devalued the dollar up to 10%.
7. Developing countries change their currency into a floating currency (floating currency) - stop the concept of fixed exchange rate.
1974 – 1974
During this period, the following is the development of events that occurred:
1. The United States revoked the tax base rules and some other restrictions that they set in 1964.
2. The central bank stopped intervening in the currency market.
3. Speculators made huge profits after the cessation of intervention from the central bank.
4. Two giant banks – Bankhaus Herstatt and Franklin National Bank – went bankrupt.
5. The amount of speculation that occurred in the currency market caused many banks to suffer losses.
6. The Bretton Woods system is no longer used.
1976
Representatives from major countries met in Kingston, Jamaica, to formulate a new global currency system.
The results of the meeting are as follows:
1. Gold is no longer used as the basis for determining the value of currency.
2. An international organization was established to monitor currency exchange activities in the world.
3. Currency is used as a tool to buy foreign currency.
4. Commercial banks are the main means of currency exchange.
5. The exchange rate will continue to float (floated exchange rate), and its changes are driven by market movements.
إخلاء المسؤولية: الآراء الواردة هنا تعبر فقط عن رأي الكاتب، ولا تمثل الموقف الرسمي لـ Followme. لا تتحمل Followme مسؤولية دقة أو اكتمال أو موثوقية المعلومات المُقدمة، ولا تتحمل مسؤولية أي إجراءات تُتخذ بناءً على المحتوى، ما لم يُنص على ذلك صراحةً كتابيًا.
اترك رسالتك الآن