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The History of Money

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  1. The History of Money October 2011

  2. Why do we have money? • Convenience • It is often easier to use moneythan barter / trade • Would you prefer to receive fish or eggs instead of cash for the services you provide to your employer ?

  3. What is money?

  4. Features of Money • A medium of exchange • A unit of account • A store of value

  5. Medium of Exchange • LiquidityEasily tradable, with a low spread between the prices to buy and sell • TransportableHaving a high valueto weight ratio

  6. A Unit of Account DivisibleCan be divided into small units without destroying its value (which is why leather and live animals are not suitable) FungibleOne unit or piece must be equivalent to another (which is why diamonds, works of art or real estate are not suitable) Precisely MeasurableOf a specific weight, or measure, or size to be verifiably countable. You must be able to weigh, measure, and count your unit of account!

  7. A Store of Value • DurableIt should be long lasting and not perishable or subject to decay (which is why food items, expensive spices, or even fine silks or oriental rugs are not generally suitable as money) • Stable value • ScarceCan’t be easily manufactured • Difficult to counterfeitIt must be difficult to make fakes, and the real thing must be easily recognizable.

  8. Features of Money • A medium of exchange • A unit of account • A store of value

  9. Best Forms of Money Historically, gold & silver coins and bars

  10. Warning on Love of Money The love of money is a root of all kinds of evil... -1 Tim. 6:10 NIV [Note: money is not evil, just the love of it.]

  11. Currency Debasement • The practice of lowering the value of currency. • Results in financial gain for the sovereign at the expense of citizens • Lowers the value of the coinage, causing inflation - Wikipedia

  12. Currency Debasement in Rome • The Roman Denarius

  13. Currency Debasement in Rome • Collapse of the Roman Silver Monetary System, measured by silver content, 10 BC – 290 AD

  14. Currency Debasement in China • 11th Century China – Flying Money • Called it “flying money” because it could just fly from your hands • Banks had switched to the use of iron coinage due to copper shortage • These iron coins became over-issued and fell in value • A bank in the Szechuan province issued paper money in exchange for the iron coins

  15. Currency Debasement in China • Initially, the paper money was fine, because it was exchangeable for gold, silver, or silk • Eventually, inflation began totake hold, as China was fundingan ongoing war with the Mongols,which it eventually lost. • In the end, the best families inthe empire were ruined, a new set of men came into the controlof public affairs, and the countrybecame the scene of horrific warfare and confusion.

  16. Currency Debasement in France • John Law was the first man to introduce paper money to France in the early 18th Century • Louis XIV died and left 3 billionlivres of debt to his son, Louis XV • Louis XV required that all taxes be paid in paper money, which was initially backed by coinage • After high inflation, people demanded coinage, and the currency collapsed. • John Law became the most hated man in France and was forced to flee to Italy.

  17. Currency Debasement in France • In the latter part of the 18th century, the French government tried paper money again. • By 1795, inflation of assignats was running at approximately 13,000%. • Then Napoleon returned the countryto gold coinage, a stable currency. • French gave it another go in the 1930s, this time with the paper franc. It took only 12 years for them to inflate their currency until it lost 99% of its value.

  18. Currency Debasement in Weimar Germany • Post-World War I Weimar Germany was one of the greatest periods of hyperinflation that ever existed. • The only way the Germans could pay the war reparations required by the Treaty of Versailles was by running the printing press. • Thousands of people lost their life savings • Many starved to death • 1 billion mark, 1923

  19. Currency Debasement in Weimar Germany • Inflation got so bad in this period that German citizens were literally using stacks of marks to heat their furnaces.

  20. Currency Debasement in Weimar Germany • Brief 4-year timeline of the marks per one U.S. dollar exchange rate: • April 1919: 12 marks • November 1921: 263 marks • January 1923: 17,000 marks • August 1923: 4.621 million marks • October 1923: 25.26 billion marks • December 1923: 4.2 trillion marks

  21. Modern Currency Debasement • Hungary – 10 million pengo, 1945

  22. Modern Currency Debasement • Nicaragua – 10 million córdobas, 1990

  23. Modern Currency Debasement • Yugoslavia – 10 billion dinar, 1993

  24. Modern Currency Debasement • Bosnia – 100 million dinar, 1993

  25. Modern Currency Debasement • Turkey – 5 million lira, 1997

  26. Modern Currency Debasement • Zimbabwe – 100 trillion dollars, 2006

  27. Modern Currency Debasement

  28. Currency Debasement

  29. Gold Certificate

  30. Silver Certificate

  31. Federal Reserve Note

  32. Fiat Currency • Currency that has value only because of government regulation or law • Has no value other than what government declares • Not backed by gold or silver • The term derives from the Latin fiat, meaning "let it be done“ • Originated in 11th century China, and its use became widespread during the Yuan and Ming dynasties.

  33. Fiat Currency • Spread to Europe gradually • Outlawed in the USA until 1933 • The Nixon Shock of 1971 ended the direct convertibility of the United States dollar to gold • Broken promise to pay • Since 1971, all reserve currencies have been fiat currencies • Competitive devaluation

  34. Dishonest Measure of Value The Lord hates dishonest scales (including fiat currency), but accurate weights (like gold and silver) are his delight. – Proverbs 11:1 NIV

  35. Evolution of Fiat Money • Goldsmiths store gold and become banks • Banks lend gold that’s theirs • Banks lend others’ gold • Banks lend with no gold backing (fractional reserve concept) • Money is debt; no gold backing

  36. Gunpowder

  37. Change in Warfare

  38. Clever Bankers “Permit me to issue and control the money of a nation, and I care not who makes its laws. - Mayer Amshel Rothchild, Banker, 1744-1812

  39. Currency Wars Geithner Says U.S. Will Never Weaken Dollar to Gain an Advantage in Trade - April 26, 2011, Bloomberg

  40. Debt Slavery The borrower is slave to the lender. - Proverbs 22:7 NIV

  41. USG Debt, 1940-2010 The wicked borrows and does not repay. - Psalm 37:21 NIV

  42. Who Owns USG Debt

  43. Stewardship of Money Today Inflation is like a tax, but it’s worse than a tax, because it is on your hard earned savings, not just your income – UNLESS you hold your savings in appreciating assets like gold and silver.

  44. Gold Up 17% Per Year on Average

  45. Silver Up 18% Per Year on Average

  46. Bibliography • Special thanks goes to the following: • Jay O’Keefe of www.somehelpful.info/Money/ • Jason Hommel of www.silverstockreport.com • Martin Armstrong, All Systems Collapse Overnight • Wikipedia • Fiat Currency: Using the Past to See into the Future • The Daily Reckoning Presents, Fiat Currency: Using the Past to See into the Future • US National Debt Clock, www.brilling.com • The Skeptical Optimist, www.optimist123.com

  47. More information: www.somehelpful.info

  48. Thank you!