A History of Reserve Currencies in One Graph

From J.P. Morgan:

 Or, as I wrote last year:

Safer assets like the US dollar? Sure, that’s what the textbooks tell you has been the safest asset in the post-war era. But are they really safe assets? On dollars, interest rates are next to zero. This means that any inflation results in negative real rates, killing purchasing power. Let’s have a look at the yields on those “super-safe” 30-year bonds:

At 2.87%, and with inflation sitting above 3.5% these are experiencing a net loss in purchasing power, too. Yes, it’s better than losing (at least) half your purchasing power on Greek sovereign debt, or watching as equities dip. But with the virtual guarantee that stagnant stock markets will usher in a new tsunami of QE cash, expect even more inflation, and even lower interest rates.

The Emperor is wearing no clothes.

Like with most things in life, the end of a global reserve currency is a matter of when, not if.

19 thoughts on “A History of Reserve Currencies in One Graph

  1. JP Morgan ignored the true reserve currency since the dawn of civilization up until the Nixon Shock – gold. The currencies of Portugal, Spain, Netherlands, France, Great Britain and (until 1971) the US were backed by gold. So it would be more rightful to say that gold used to be the global reserve currency, which Nixon and Kissinger abandoned for the sake of American free lunch.

    • Yes, of course, but the relevant question was which country was stamping the trusted forms of gold (as well as silver, and most significantly debt)? It’s a question of global imperial prestige, which America is finally losing.

  2. Well no, it wouldnt…..
    Central banks around the world stockpiled raw gold, as well as Gold Sterling and before that, Gold Francs.
    Intranational trade would be conducted in, Gold Sterling or Gold Francs, not actual gold.

    • Key quote from your excellent article for those who want to understand the implications of breakdown:

      After the Romans left in 410 AD, the archaeological record suggests that the economy slumped to a much more primitive level than on their arrival nearly 400 years earlier.

      The reason is clear enough. The more complex and specialised an economy becomes, the more helpless its individuals are in the face of breakdown. The Romans introduced a higher level of complexity to Britain, then took it back home again.

      I will say though that I think specialisation is older than you credit to be. Not all hunter-gatherers hunted and gathered; we know that from contemporary Amazonian and Andamanese societies. They live in family units and tribal units that allow for some specialisation — caring for children, hunting, crafting tools, cooking, etc.

      • Thanks for the compliment, and you’re probably right on that last note – it is true that there was some specialization in the primitive societies. But this specialization was small, so we can “ignore” it (even though technically it did exist).

        By the way, what did you think of my english? (i am serious, i am not a native speaker of the language and i justed started writing in english – i have been blogging about the coming depression since 2006, but i’ve doing it in my native language, greek)

  3. Hi! I could have sworn I’ve been to this site before but after checking through some of the posts I realized it’s new to me. Anyways, I’m definitely delighted I found it and I’ll be book-marking and checking back often!

  4. Greetings from Portugal!
    Excelent blog and nice to see my country on a chart for good reasons even though it was centuries ago ;(

  5. http://en.wikipedia.org/wiki/Jacques_Ellul

    I think because we live in a society where (economic, political, social etc.) techniques exist and dominate the problems go beyond economics.

    http://en.wikipedia.org/wiki/Jacques_Ellul

    What many consider to be Ellul’s most important work, The Technological Society (1964) was originally titled: La Technique: L’enjeu du siècle (literally, “The Stake of the Century”).[12] In it, Ellul set forth seven characteristics of modern technology that make efficiency a necessity: rationality, artificiality, automatism of technical choice, self-augmentation, monism, universalism, and autonomy.[13] The rationality of technique enforces logical and mechanical organization through division of labor, the setting of production standard, etc. And it creates an artificial system which “eliminates or subordinates the natural world.”
    Regarding technology, instead of it being subservient to humanity, “human beings have to adapt to it, and accept total change.”[14]:136 As an example, Ellul offered the diminished value of the humanities to a technological society. As people begin to question the value of learning ancient languages and history, they question those things which, on the surface, do little to advance their financial and technical state. According to Ellul, this misplaced emphasis is one of the problems with modern education, as it produces a situation in which immense stress is placed on information in our schools. The focus in those schools is to prepare young people to enter the world of information, to be able to work with computers but knowing only their reasoning, their language, their combinations, and the connections between them. This movement is invading the whole intellectual domain and also that of conscience.
    Ellul’s commitment to scrutinize technological development is expressed as such:
    “ [W]hat is at issue here is evaluating the danger of what might happen to our humanity in the present half-century, and distinguishing between what we want to keep and what we are ready to lose, between what we can welcome as legitimate human development and what we should reject with our last ounce of strength as dehumanization. I cannot think that choices of this kind are unimportant.[14]:140

    On Humanism
    In explaining the significance of freedom and the purpose for resisting the enslavement of man via acculturation (or sociological bondage), Ellul rejects the notion that this is due to some supposed supreme importance linked to humanity. He states that enslavement expresses how authority, signification, and value are attached to humanity and the beliefs and institutions it creates leading to an exaltation of the nation or state, money, technology, art, morality, the party, etc. The work of humanity is glorified.
    “ …man himself is exalted, and paradoxical though it may seem to be, this means the crushing of man. Man’s enslavement is the reverse side of the glory, value, and importance that are ascribed to him. The more a society magnifies human greatness, the more one will see men alienated, enslaved, imprisoned, and tortured, in it. Humanism prepares the ground for the anti-human. We do not say that this is an intellectual paradox. All one need do is read history. Men have never been so oppressed as in societies which set man at the pinnacle of values and exalt his greatness or make him the measure of all things. For in such societies freedom is detached from its purpose, which is, we affirm, the glory of God.[17]:251

  6. Pingback: Diamonds May Be Forever but Paper Money Certainly Isn’t

  7. Pingback: Dollar Reserve Currency Status Growing Old - Monty Pelerin's World : Monty Pelerin's World

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