Barter to Bitcoin: Important Historical Dates for Currency Markets

Throughout history, money has been absolutely central to developing the modern international trade networks which exist today and while a detailed examination of how currency markets have developed is outwith the scope of this article, we’ll look at some of the key steps in building the currency markets we know today as well as some of the most impacting developments of the last century.

Origins of Money

  • 9000 BCE : Barter

    First recorded in Egypt, evidence of a bartering-based economy can be seen as far back as 9000 BCE. Ancient peoples would trade goods they had in surplus for ones they lacked with grain and wheat, livestock and lumber all popular goods for bartering.

  • 1100 BCE : Figures Denominating Value

    By around 1100 BCE, people in China had started to use small replicas of goods cast from bronze. These figurines were though to reflect a set volume or quantity of the goods which they depicted and could therefore be used in lieu of the actual goods themselves, opening up trade further. Over subsequent centuries, these replicas developed into rounded coins – presumably for practical purposes and not too dissimilar from the coins we use today.

  • 600 BCE : First ‘Official’ Currency

    By 600 BCE, the first ‘official’ currency was minted by King Alyattes of Lydia – modern day Turkey. The standardised coinage allowed for trade to flourish around the Mediterranean basin and provided the basic template for future currencies. The following centuries saw currencies rise and fall with the civilisation from which they were borne.

    For Europeans, the Florin – which was minted in Florence in around 1250 CE – became the first currency to be widely used throughout Europe, facilitating trans-European trade and encouraging international commerce.

  • 1290 CE : Marco Polo Discovers Paper Money!

    Having made the jump from physical goods to symbolic representations thereof to standardised currency, Marco Polo’s return from his far-east adventures introduced the concept of paper money to Europeans. Paper money opened up brand new avenues for currency and was great for business given it could be mass-produced without relying on raw materials such as gold and silver.

    Despite the apparent benefits, paper money didn’t really catch on in Europe until the 17ty century with Sweden Printing the first bank notes in 1661 CE.

  • 1860 : The Birth of Tech-Enabled Transfers

    Industry giant Western Union spearheaded the birth of ‘e-money’, facilitating the transfer of funds via telegram. Interestingly, this is where the Pound to US Dollar exchange rate gets its ‘Cable’ nickname from with the moniker referring to the fact that currency transfers across the Atlantic Ocean were facilitated by physical undersea telegram cables.

  • 1863 & 1864 : National Bank Acts

    As comptroller of the US currency – a newly minted position – Hugh McCulloch spearheaded the National Bank Acts of 1863 and 1864, establishing a system of nationally chartered banks and authorising the issuance of national bank notes. This encouraged the development of a single national currency backed by bank holdings of the US Treasury securities and provided a template for today’s typical banking system.

  • 1907: Bankers’ Panic aka Knickerbocker Crisis

    The Panic of 1907 was a financial crisis that took place over a three-week period, kicking off in mid-October 1907. Over the course of weeks, the New York Stock Exchange fell by almost 50% relative to the highs of 1906, triggering panic in financial markets and spurring numerous runs on banks and trust companies.

    While originating in New York, it didn’t take long for the Panic to spread across the US, forcing many state and local banks and business into bankruptcy. A According to historical documents, the primary cause of the Panic was a retraction of liquidity by New York banks which drove a sharp loss of confidence among depositors after a failed attempt to corner the market on stock of the United Copper Company.

    The Panic finally abated when JPMorgan pledged vast sums of his own fortune – and persuaded other New York bankers to follow suit – in a bid to shore up the banking system.

  • 1908: Aldrich-Vreeland Act

    As a result of the Bankers’ Panic of 1907, Congress passed the Aldrich–Vreeland Act, establishing the National Monetary Commission (which recommended the Federal Reserve Act of 1913).

    The Aldrich-Vreeland Act was designed to provide flexibility within currency markets by permitting national banks to issue additional currency, limiting the potential for a repeat of 1907’s liquidity induced chaos.

  • 1913 : Birth of the Federal Reserve

    Numerous reports from the National Monetary Commission contributed to the eventual creation of the Federal Reserve System via the Federal Reserve Act of 1913 (aka the Glass-Own Act). While the Aldrich-Vreeland Act was welcomed by a banking system in need of desperate reform, it was far from a perfect solution with much controversy over the fact that the Act effectively gave banks and their private owners control over the currency.

    After winning unified control of Congress in 1912, President Wilson, Congressman Carter Glass, and Senator Robert Latham Owen crafted the central banking bill which was aimed at finding the middle ground between the Aldrich Plan – which left control of the currency in the hands of privately owned banks and a new wave of progressives who felt espoused the benefits of government control of the central banking system.

    Fed Board

    Above: Federal Reserve Board and Bankers 1914

    The Federal Reserve Act established the Federal Reserve System, consisting of twlve regional Federal Reserve Banks who would be jointly responsible for coordinating efforts to control the country’s money supply “to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.”

  • 1922-24: The Introduction of the Reichsmark

    Hyperinflation in Germany following the First World War forced the German monetary authority to introduce the Rentenmark in 1923 in a bid to stabilise the country’s economy, although the Rentenmark was rapidly withdrawn to be replaced with the longer-lasting Reichsmark – which was valued equitably to the pre-war gold-backed mark – in 1924.

  • 1929-1939: The Great Depression

    Kicking off with the collapse of the US stock market in October of 1929, the Great Depression was the worst economic downturn in the history of the industrialised world.

    Having more-than-doubled US national wealth through “the roaring twenties”, the stock market peaked in August of 1929 with everyone from millionaire tycoons to cooks and janitors piling their savings into stocks, riding a wave of post-war positive sentiment and economic expansion.

    However, sentiment got ahead of underlying fundamentals with unemployment levels on the rise, industrial output on the slide and virtually nil wage growth sparking a surge in consumer debt at a time when widespread droughts were weighing heavily on the agricultural sector – which at the time made up a much larger portion of US domestic activity.

    A mild recession ensued in the Summer of 1929 before it all came crashing down on October 24th 1929 in what would later be dubbed “Black Thursday”. A second wave of Panic struck not a week later on October 29th or “Black Tuesday” with investors unloading shares and sparking a Panic reminiscent of 1907.

    Despite assurances from President Hoover that the crisis would run its course, panic set in and the financial market turmoil only deepened. By 1930, 4 million Americans were out of work, rising to 6 million in 1931 and a staggering 15 million by 1932 (more than 20% of the US population). Bank runs were common with thousands of banks filing for bankruptcy in the initial years of the depression.

    Great Depression Key Facts:

    – The stock market lost almost 90% of its value between 1929 and 1933.

    – Around 11,000 banks failed during the Great Depression, leaving many with no savings.

    – In 1929, unemployment was around 3%. In 1933, it was 25%, with 1 out of every 4 people out of work.

    – The average family income dropped by 40% during the Great Depression.

    – More than $1 billion in bank deposits were lost due to bank closings.

    – Around 300,000 companies went out of business.

    – Hundreds of thousands of families could not pay their mortgages and were evicted from their homes.

    – President Roosevelt pushed 15 major laws through in his “First Hundred Days” of office.

    After Roosevelt’s election in 1933, conditions improved on the back of sweeping reforms although it wasn’t a one-way road to recovery with another sharp recession occurring in 1937 – in part caused by the Fed’s decision to increase the reserve requirements ratio.

  • 1930: Formation of the Bank for International Settlements (BIS)

    The Bank for International Settlements (BIS) was created in 1930 at the Hague Conference with the purpose of overseeing and dealing with Germany’s reparation obligations following the Great War. The Swiss-based BIS became the de facto central bank for some 60 central banks around the globe, helping to pursue “monetary and financial stability”.

    From the BIS website: “Established in 1930, the Bank for International Settlements is the oldest international financial institution. From its inception to the present day, the BIS has played a number of key roles in the global economy, from settling reparation payments imposed on Germany following the First World War, to serving central banks in their pursuit of monetary and financial stability”

  • 1936: The Tripartite Agreement

    While it didn’t last long after the commencement of the Second World War, the Tripartite Agreement was an international monetary agreement entered into by the UK, US and France in September of 1936 in a bid to stabilise their respective nations’ currencies and the exchange rates.

    The agreement came following the suspension of the gold Standard by the UK in 1931 and by the US in 1933 which created a serious imbalance between the US Dollar, Pound Sterling and the currencies of the ‘gold bloc’ nations, particularly France. Nations subscribing to the Tripartite Agreement agreed to refrain from deliberately devaluing their currencies to help maintain stability in exchange rates.

  • 1944: Bretton Woods Agreement

    Following the breakdown of the Tripartite Agreement in the face of the Second World War, the Allied nations reached an agreement – ‘The Bretton Woods system of monetary management’ – at the Bretton Woods conference of 1944 which brought a close to free-floating currency exchange rates between allied nations. As per the agreement, each country’s central bank took on the responsibility of maintaining fixed exchange rates between their respective domestic currency and the Dollar, effectively pegging Allied (Canada, Western European countries, Australia, and Japan) denominations to the USD and making the Greenback effectively a gold substitute.

    The purpose of the Bretton Woods Agreement was to establish a new system of rules, regulations and procedures for major world economies in a bid to ensure economic stability and avoid crises such as the Great Depression which at the time was still fresh in the memory of many. To do this, the Bretton Woods agreement led to the formation of the International Monetary Fund (IMF) as well as the World Bank.

  • 1949: Post-War Devaluations

    With the global economy still feeling the hangover of the Second World War, the UK devalued the Pound Sterling by around 30% against the US Dollar, kicking off a broader realignment of global exchange rates which saw other nation’s follow suit with devaluations conducted by Australia and India among others.

  • 1957: Treaty of Rome

    The Treaty on the Functioning of the European Union, better known as the Treaty of Rome effectively birthed the European Economic Community (EEC), forming the core of what would later develop into the European Union.

    Treaty of Rome

    Above: Signing of the Treaty of Rome, Capitol Hill, March 25th 1957

    Signed by France, the then West Germany, Italy, the Netherlands, Belgium and Luxembourg, the Treaty of Rome was a key stepping stone to the formation of the modern day European trading bloc among nations “determined to lay the foundations of an ever closer union among the peoples of Europe”

  • 1971-73: Bretton Woods Collapse

    After re-adopting the gold standard for the past 30-odd years, President Richard Nixon decoupled the Dollar from gold in 1973, effectively nullifying the Bretton Woods Agreement and ending a period of fixed exchange rates – wherein Allied nation’s currencies were fixed to the Dollar and the Dollar was fixed to gold. The UK also abandoned Sterling’s official link to gold in 1972.

  • 1979: European Monetary System

    Following the collapse of the Bretton Woods Agreement, European nations adopted the European Monetary System (EMS), seen as one of the initial steps in the road to the formation of the Euro (EUR). The EMS was coupled with a new exchange-rate mechanism (ERM) with central banks for European nations agreeing to maintain their currencies within narrow bands to reduce exchange rate variability and achieve monetary stability within Europe.

    While not an initial member of the EMS, Britain joined the EMS and European Exchange Rate Mechanism in October of 1990 following repeated failures to meet its money-supply targets.

  • September 16th 1992: Black Wednesday

    16th of September, 1992, also known as ‘Black Wednesday’ saw the Pound Sterling collapse, forcing the UK to withdraw from the European Exchange rate Mechanism. Given the terms of the ERM, the UK was forced to withdraw from the ERM given a failure to stop the Pound declining beyond the lower limit specified by the ERM.

    Driving the Pound’s plunge was billionaire George Soros’ Quantum Fund which shorted more than $10 billion in Pound Sterling in under 24 hours, “breaking the Bank of England”, sparking panic, dragging the Pound-to-Dollar below $2 and reportedly earning Soros over $1 billion profit in a single day in what’s likely to stand the test of time as the most successful forex trade in history.

    While the credibility of the Bank of England was decimated, some believe Black Wednesday to be the trigger for a turnaround in the UK economy which had been on the back-foot since joining the ERM in 1990. In the aftermath of Black Wednesday, the UK was forced to enact new policies which led to an improvement in economic growth and lower unemployment.

  • May 25th 1993: US Brands China a Currency Manipulator

    Following signs that China had deliberately devalued the Yuan in a bid to gain an edge in international trade, the US treasury labels China a currency manipulator. Subsequently, China moved to devalue the Yuan on January 1st 1994, moving the Yuan from 5.8 to the USD to the market-determined level of 8.7, amounting to a 33% devaluation amidst sweeping economic reforms.

    While not firmly pegged, the new “controlled floating-rate system” allowed for the Yuan to fluctuate within a narrow, government-determined, range bringing both stability and flexibility. In the years that follow, Chinese monetary authorities peg the Yuan at 8.28 to the Dollar.

  • January 1st 1999: Birth of the Euro

    Following the Treaty of Rome in 1957, establishing the European Economic Community, the European Monetary System of the late 70’s and the Maastricht Treaty of 1992/3, the Euro is finally born. The single currency entered circulation on January 1st 1999, effectively replacing the currency for all initial member states (apart from the UK and Denmark).

    European Officials

    Above: European Commissioner for Economics Yves-Thibault de Silguy with European Commission President Jacques Santer, December 31st 1998

    The currency was launched in ‘virtual’ form initially and was only available in the form of travellers checks, electronic transfers, etc until 2002 when notes and coins came into circulation. The Euro commenced its life at around $1.1686 on December 31st 1998 before falling to parity against the Greenback by the end of 1999.

  • 2005: China Abandons Dollar Peg

    China abandoned its decade-old peg against the US Dollar, reverting to a manged float and devaluing the Yuan by 2.1% overnight to 8.11 against the USD.

    Subsequent years say the Peoples Bank of China (PBoC) re-peg the Yuan against the Dollar at 6.83 in emergency efforts to stabilise the Chinese economy during the height of the global financial crisis. Following the crisis, the PBoC and Honk Kong Monetary Authority (HKMA) expand the scope of yuan clearing in Hong Kong, and offshore yuan trading begins to take off before opening Yuan trading to US clients in 2011.

  • 2009: Bitcoin is Born

    Following a white paper entitled “Bitcoin: A Peer-to-Peer Electronic Cash System” in October of 2008 which laid down the architecture for “a system for electronic transactions without relying on trust”, Satoshi Nakamoto mined the genesis block of bitcoin on January 3rd 2009, birthing the first mainstream cryptocurrency.

    From its humble beginning’s Bitcoin gained steadily in popularity before rallying to a peak of almost $20k in 2017 while simultaneously providing the template for and spawning thousands of new blockchain based digital assets.

    Facebook are set to launch Libra in 2020, a digital currency pegged to a basket of stable assets in a bid to open the world of finance to third-world nations and create a digital currency which has real-world use cases.

  • August 2019: US Brands China a Currency Manipulator… Again

    Following the Yuan’s fall through the symbolic seven-to-one-dollar level (for the first time since May 2008 during the global financial crisis), the US Treasury added China to its list of currency manipulators.

    Taking to twitter, the US President wasted no time in accusing Beijing of “currency manipulation,” adding it was “a major violation”.

    The PBoC’s abandoning of their long-held defence of the 7.0 level comes amid rising protectionism with a US-China trade war hammering market sentiment and drawing fresh warnings of a potential global recession amid cooling growth.
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