Historically, just a single currency has played a dominant role globally.
Historic global trade currencies
The silver Drachma issued by ancient Athens in the 5th Century B.C. was most likely the first currency that was widely circulated.
The gold Aureus and silver Denarius coins issued by Rome were next and they were the dominant currencies from 1st Century B.C. to 4th Century A.D.
Inflation caused major devaluation of the Roman-issued currencies, causing them to become increasingly less accepted making way for the Byzantine Empire’s gold Solidus coin to become the dominant currency in international trade from the 5th Century to 6th Century.
The Arabian Dinar replaced the Solidus as a global trade currency between the 7th to 10th Century.
The 13th Century saw Florence issued Fiorino become the dominant trade currency until the 15th Century.
Modern trade/reserve currencies
Various Currencies of Portugal 1450 to 1530 (80 years)
The Portuguese currency was the dominant trade currency for 80 years between 1450 to 1530 until the Portuguese Succession Crisis caused its downfall.
Various Currencies of Spain 1530 to 1641 (111 years)
The Iberian Union saw the Spanish currency becoming the dominant trade currency between 1530 to 1641 until the fall of the Iberian Union saw it being replaced.
Various Currencies of Netherlands 1642 to 1720 (78 years)
The rise of the Dutch India trade company saw the currency issued by the Netherlands become the international trade currency. Paper bills began replacing coins at this time.
Various Currencies of France 1720 to 1815 (95 years)
Anglo Dutch wars saw the currency issued by France become the dominant trade currency.
UK Pound 1815 to 1920 (105 years)
As Britain became the dominant trading country with the rise of the British East India Company, the British Pound became the dominant world trade currency. British Banks became the leading financer of trade and opened branches globally. British shipping companies were leaders in their space and British insurers became the main insurers of trade globally. The decline of the British East India company and the start of World War I saw the share of the pound decline in world trade.
US Dollar 1920 till date (98 years so far)
Post World War I, the US dollar became the key trade currency as the US economy played a key role in world trade. The Bretton Woods system in 1944 established a currency regime where the US dollar became the principal reserve currency directly pegged to the price of gold. As a result of that many currencies were linked to the dollar. In the 1970s, US President Richard Nixon released the dollar from its peg, creating the floating currency markets that exist today.
Modern reserve currencies have lead global dominance for an average of 95 years with an average variance of 10 years. Just by the law of averages, the US dollar has another 7 years as the world’s reserve currency.
9 Replies to “A brief history of global trade or reserve currencies”
With the gradual withdrawal of the US $ set to accelerate the 95 year average +- 10 years looks right on track !!
Not sure if I can see that happening ~2025. Which currency would replace it? China has serious issues, India also, the Pound Sterling has had its time. Bitcoin? I doubt it!
Also, the US is resilient, still is the most influential country with the most powerful military and most global trade is done in USD.
In the same way the current bull market is much longer than statistically expected, the USD will be the dominant currency for the foreseeable future.
The US is the largest debtor country on earth. China is expanding around the globe with little push back. The EU is more competitor than partner. Whatever problems China may be dealing with, their central one party system is better suited for their future than our own two party system. One last item not covered in this article, is the certitude expressed by every previous world currency holder had months and weeks before their currencies fell-we will be no different. Regarding the size of our military, it has little influence on our currency. We maintain influence over the world not by our military but by our currency. Japan has the most stable currency and is the safest currency to hold at this time. With the massive printing this year the Treasury and the Fed have investing/printed nearly 4 trillion dollars for QE, not included in the 3 trillion dollars for the CARES Act, and the 2trillion dollars tax cut in 2016. I give the US greenback a decade at best. Jerome Powell has been talking about this weekly since the beginning of the Covid outbreak.
China is expanding around the globe because it has no choice. The US is the least globally-integrated economy (as a share of GDP) in the developed world. Put simply, if you cut off global trade (other than Canada and Mexico), we’d have a correction of about 5-7% of GDP. That’s it. If you do the same thing to China, their economy shrinks by 30-40%. Global trade is guaranteed by the largest military because it underwrites global shipping lanes. Take away the security of the US Navy patrolling the shipping lanes (or even possibly becoming a belligerent to your own shipping) and require your boats to fend for themselves, and now you understand why there is so much concern about the South China Sea as effectively China is surrounded by countries that don’t really like them that much and are capable of harassing their shipping lanes, hence OBOR and China’s attempt to circumvent that by reinstituting Silk Road 2.0. The problem is that all of China’s growth is on the coast and their geography is similar to that of Brazil’s, which severely limits their port options (major reason why Hong Kong is so valuable). Couple that with their 4-2-1 problem, and my money is on a Civil War within the next decade in China. They have a strong centralized government, on paper, however, without extremely heavy control tactics in place, it simply won’t last, and the heavier the control tactics, the more pressure builds up from Shanghai and the other metropolitan areas that don’t really like Beijing too much to simply say “F*** it, we’ll create our own area and do trade on our own.”
Great article. Can I ask what sources did you rely on to get this information?
A couple of sources, including coin collecting literature and central bank archives.
wait till they debase it by Brrrrr.
Global currency changes are not so much because of some foreign power. It is the result of rotting from within.
Lying politicians, politicians focused on manipulating voters rather than fixing the country, always taking the easy way out, government debasing their own currency (excessive printing or diluting gold content), excessive unending wars waged, stagnant government (laws do not get passed), rules not renewed, but instead everyone tries to circumvent the rules, etc. These are all signs of a gradually crumbling dynasty.
Having the biggest military and spending, more than the next 6 highest military countries combined, may help to maintain the currency for a time. But in the long term, it is a drain on the budget, and also a threat to the country itself, another factor causing it to crumble.