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Why was gold used as a currency

Why was gold used as a currency

Gold has been the world’s currency for thousands of years. The rise of the current monetary system with fiat money did not happen until the middle of the 20 century. It has been used by all major world civilizations throughout the whole history. Many people might wonder why gold was accepted as a currency for such a long time. There are many reasons, but the most important of them include the following: Gold was one of the first metals discovered by mankind as it was closer to the earth surface than many others. According to many historical sources the discovery of the gold might have happened as early as 8000 B.C. The familiarity that the humans had with the metal led to high level of trust. Gold does not cored and hence does not loose its value. This makes possible to be transferred to next generations. Such thing is impossible with many other commodities such as iron, food or oil for example In addition to that gold is very dense which means that it is easier to carry & handle than a sack of rice or a barrel of oil. Gold has always had a stable supply across centuries. Finding and mining gold is difficult. This means that it does not lose value fast as a result of oversupply. In comparison, it is very simple for any government to print more money and thus erode the value of its currency. Gold is the most malleable metal, which means that it is very easily handled or manipulated. Furthermore it has only one grade and thus only one pricing. If you...

The Euro

An economic and monetary union between the members of the European community was first attempted in the 1960s, but the euro wasn’t created until January 1, 1999. It was finally put into use in 2002, and it was slowly taking over the former national currencies. The European Economic Community needed a way to reduce the currency exchange rate fluctuation. In 1969, Pierre Werner, prime minister of Luxembourg, proposed a plan to centralize the national macroeconomic policies by fixing parity rates and allowing flexibility of the capital. He did not, however, mention establishing a central bank and a single currency. The plan failed. In 1979, the European Monetary System was created, which stabilized the exchange rates. The Community continued developing the monetary system, and finally, in 1988, France, Italy and the European Commission established a central bank. A year later, Jacques Delors, Commission president, introduced a plan for European Monetary Union, including the need to create institutions like European System of Central Banks. The ESCB would build and apply the monetary policy. With the signing of the Maastricht Treaty in 1992, the members of the European Community, except the UK, agreed to create a single currency. Shortly after, The European Monetary Institute was created, and in 1995 the name ‘Euro’ was accepted as the currency name, instead of the originally planned ‘Ecu.’ The creation of the euro required budgetary discipline and ways to ensure its stability versus other national currencies of the countries not yet members of the EU. Thus, Stability and Growth Pact was adopted along with a new exchange rate mechanism. Strict requirements were also set to participate in...

Wire Transfer

Money is believed to be first used in 600AD in China, and money transfers started about 150 years ago—around the time the telegraph was invented. Western Union completed the first transcontinental telegraph line in 1861. In 1879, WU left the telephone business. That inevitably led to money transfer becoming their primary business. In the past, transferring money was pricey, and it required lots of time and effort. One gave the money to a bank or a telegraph office, and the clerk would then send a note to the recipient, informing him to pay a specified amount. Finally, the bank or the telegraph office would send the money to adjust the imbalance in the other agency. Now, the process is similar—you go to a financial institution, and tell them to send the money to another place. The difference now is that over time, the transfer method has evolved to purely electronic, and it’s not as expensive. The main benefits of the electronic procedure are time-efficiency—completed for minutes, and safety—due to the money being tracked via an identification number. In recent years, many international money transfer companies have gone online, which has simplified the process and made it extremely popular–thus lowering the fees. You can now transfer money either through banks, or through money transfer companies such as Transfer Mate. Banks are always a solid solution for making payments abroad. While being trustworthy, banks tend to also have cluttered interdependent procedures, often resulting in slower service. A bank has a lot on its hands. Personal loans, business loans, student loans, deposits, mortgages,  offshore accounts, internal bank transfers, foreign bank transfers. And...

The Short Story of Banking

Before the money was invented, food, clothing, shelter, gold and other items were traded instead. It was not long after goldsmiths started casting golden coins, so people could trade them for goods. Exchanging coins was far more convenient and people could carry them on longer distances. By collecting these coins, they were gaining wealth, and naturally, they needed a safe place to keep it. Many were asking the goldsmith to protect their gold. In return, they were paying him to rent storage space. The goldsmith was becoming good at the rental business, and was collecting huge amounts of golden coins. He then realized that depositors rarely came to remove their gold, and if they did, they never came in all at once. That was because when people were paying for goods, they were trading the claim checks the goldsmith was giving them as receipts, as if it was the gold itself. The receipts were even easier to carry, and different amounts could be written on them, as opposed to the heavy coins that had to be counted every time. Another business came to the goldsmith’s mind—lending gold by charging interest. Borrowers were coming to him, asking for loans in the forms of these claim checks, instead of the gold. The industry was expanding as more people were asking for loans. The goldsmith was simply lending claim checks against his depositors’ gold in addition to his own gold. The system was working out perfectly as long as the loans were repaid. Later, his depositors wanted a share of the interest—the banker was paying low interest on the deposits of other...