Origins of this Modern Avatar

The 2nd European War

In 1790s, with the start of Napoleonic Wars, the transfer of British bullion from trade-centres of Europe came under increasing risk from the anti-Monarchial gangs. Later, Napoleon’s ‘Continental Blockade‘ led to massive shortage of silver coinage in Britain itself. England began minting  ‘token’ silver coins, and even over-struck the loaned foreign coins.

By 1797, ‘Paper Money’ was legalised in Britain, England promising its trade-partners it would reimburse their businesses with gold once the war is over. Until that time, the business would take only ‘Paper Bills’ as certificates of gold. One use of such money was this: European revolutionaries could seize Paper Money from Britain-partners in Europe but not the actual gold. The Bills were paper to the enemy, gold to a friend!

Introduction of ‘Gold Standard’

For millennia, almost all civilised human societies traded their goods in two currencies – gold and silver (poorer societies used other easily degradable metals like copper, nickel, etc). Such a system where two highly precious metals with distinct intrinsic value was called Bimetallic System.

1815: When Britain won the 2nd European War, the Napoleonic continent was at its financial mercy. With all the treasure at its disposal, England began a massive coinage program that standardised the gold sovereigns (7.98 gm coin) and circulated even more silver crowns (28.2 gm) and half-crowns (14.1 gm).

Britain then declared to the world its intention to apply a Gold Standard into effect – an economic policy where all trade was to be done in gold only, and silver coins were pegged to the gold as any other commodity. Silver lost its intrinsic value as a precious commodity, when silver coins were declared legal tender only for sums of money up to two sovereigns (or two British pounds)!

By 1820, gold sovereigns were used in exchange for goods all over the British colonies. In the international market, one British Pound was fixed at 4.85 US dollars and, 12.10 Dutch guilders, 26.28 French francs, 20.43 German Marks or 24.02 Austro-Hungarian Krones.

1821-44: Britain introduced a series of laws that made the Bank of England (BoE) issued paper Notes as the legal tender, promising to fully back them up by gold. The British Pound became established as the full Gold Standard, instead of gold. BoE was given the monopoly of printing and issuing bank notes, with an ability to charge interest by more than 5%. The Protestant rule of ‘moderate interest’ was quietly sidelined.

The empire was ready to dominate the world, economically.

‘Euro-1’ (Latin Monetary Union): Challenging the Gold Standard

1867: In Europe, the ‘International Monetary Conference’, which was shunned by Britain, formed the Latin Monetary Union (LMU). Interestingly, all the LMU countries were Catholic except Switzerland (Protestant), later joined by Orthodox Christians. All believing in the Christian message against the use of usury.

France, Belgium, Italy and Switzerland standardised their national currencies where 1 Franc was equal to 4.5 gm of silver or 0.29 gm of gold (in a ratio of 15.5 to 1), and made their currencies freely interchangeable between these countries. LMU promised to practice Bimetallism (dual standard of gold and silver), as against the British Gold Standard. Probably they didn’t have much of a choice as most of the gold, and new innovative start-ups, were with the British.

Next year, Spain and Greece joined LMU, and later by Romania, Bulgaria, the Papal States (ruled by Pope), Venezuela and Serbia.

As the Old religion collided with Protestant innovation, France and the Papal States did not honour the purity of their coins they were producing, making profits at other’s expense. In addition, the witty Protestant-German traders brought cheap silver from Britain, minted them into LMU silver coins and then exchanged those silver coins for gold coins, reaping huge profits.

1871: After defeating France, Protestant Prussia (which later became Germany after unification) became a major European player. Soon, it accepted the Gold Standard and forced France to pay its war indemnity only in gold.

In the years 1871 and 1872, the French government-mint had received only 5 million francs of silver for conversion to coins. In 1873, after receiving 154 million francs of silver for coin conversion, free conversion of metal-silver to coins was temporarily halted by France. By 1878, minting of silver coinage was suspended.

The LMU became a de facto gold standard. Its citizens were happy to live in contradictions, rather than face the realities of life imposed on them.

Scandinavian Monetary Union

1871: The newly founded German Empire had accepted the British created Gold Standard. And Germany was Scandinavia’s main export partner – supplying Prussian industrial heartland with ever more iron ore.

1873: The Scandinavian Monetary Union was created by Sweden where one krona was fixed at 0.40 grams of gold. Denmark joined it by debasing its currency (Riksdaler) by half and Norwegian Speciedaler lost 25% of its value on joining the SMU. Unlike LMU, it was the Gold Standard.

Later, all three countries (all Protestant nations) lost their peg, one to one, with the outbreak of 3rd European War (‘World War-1’) in 1914 when Sweden untied its krona to gold.

In United States

Before the Revolutionary War, a rebellion against the dominating Anglican Church, European coins circulated freely as legal tender in the American colonies. The most common was the Spanish silver dollar coins, minted mostly in Mexico from silver mined from Central and South America.

After the rebellion, in 1785, the United States adopted a Silver Standard based on the Spanish dollar, from where US dollar derives its name.

1792: US accepted Bimetallism (at 15:1 value; at $1.29 troy of pure silver and $19.39 troy ounce of fine gold). Also, it allowed ‘free coinage‘ of these metals by its mint – meaning, anyone could exchange these metals for government coins.

As there was precious little gold available in the US (gold was saved by the US government to trade with Britain after introduction of the Gold Standard), only silver circulated as money in the whole of the free Americas.

1791: The First Bank of the United States was created, licensed for  20-years, by the US government for accepting deposits, issuing bank notes and making loans.

1816: After the expiry of lease, US government took full 5 years for the Second Bank of the United States to be formed. However, for its corrupt practices and constant frauds, the United States did not renew its license in 1836. The US was without a central bank for the next 40 years. No silver was coined in US till its Civil War. It was felt the banks were not necessary.

Domination of Gold Standard

1861-65: During the US Civil War, a war waged among the US Protestants – greed being the prime reason, paper money (called ‘Greenbacks) were issued without the promise of they being redeemed for either gold or silver. In fact, US suspended payments in silver.

The US Civil-War was costly – 5% of northern young White males and 20% of southern young White males died. The world was introduced to the concept of Total War here.

Post-Civil War, the Greenbacks had to be taken out of circulation to introduce ‘standardization’, as demanded by the British banks who funded the war and blockaded the Southern State’s access to the world.

1873: Just like the ‘British deed of 1816’, the new ‘Coinage Act’ standardized gold coins in US but not the silver coins, effectively adopted the Gold Standard and ‘demonitizing’ the silver: now silver was pegged, just like any other commodity, to gold.

Effects of Gold Standard: Economic Imperialism

By 1880, the European banking elite had accepted the Gold Standard while the colonized countries of the world, including India and China, and the rising Japan were not on the Gold Standard.

By 1896, the demand for gold in the capitalist countries – managed by traders (all Protestant nations) – resulted in dramatic rise of gold prices when compared to silver: from 15.5:1 in 1870 to 16.5:1 in 1880 to 30:1 in 1896.

The non-Protestant world traded their gold in the ratio of 15:1, not realising that their gold was being drained into the capitalists countries by the trade while they are being flooded with silver. If they realised, they did not know how to answer the new financial reality. The monetary value of “non-Gold Standard (non-Protestant) world” was depreciated by halve within a generation.

From 1879 to 1889, the share of US gold increased from 7% to 20% of the world’s gold. Rest of the gold went to European empires.

As more industrial goods, including railways, came to the colonized world, the Europeans demanded payment in gold. Lack of gold, and silver at 30:1, in these colonised lands meant devaluation of their currency. That resulted in devaluation of Indian Rupee by 25% of its value, while Japanese Yen, Chinese Yuan, Philippine and all Latin American Peso (all pegged to Mexican Peso) lost 50% of their value!

This meant that the colonised nations

1. Imported good at double the rate, while their exports were discounted by 50% in Europe.

2. Had to double their capital to get a head-start to compete in trade and innovations with the Europeans.

3. Were paying double the money for their debts and interests from native-royal shoppings, wars, or public good (railways to roads).

Effects of the 3rd European War

Before 1914, Britain held 40% of the world’s overseas investments (trading companies, like today’s share holders). Britain was regarded as the safe haven for any money – hard earned or otherwise. That money came from European monarchies, plundering politicians of South America, businessmen from Africa and Asia, even Russia. Religion was no bar; only business (and race) mattered in England.

1914: With the outbreak of 3rd European War (World War-1), Britain suspended the gold standard – by declining to pay gold to depositors/investors in return of its paper Notes. The moneyed world had no choice but to hope for Britain’s victory, to get their money back.

By 1918, Britain itself was in debt, mostly to the US, as 40% of its government budget on spend usury repayments. This was also the case for all of the European empires.

After the wanton destruction of life and property in the 3rd European War, Europe decided it will not part with its gold to its debtors. Various measures were introduced to avoid the money owed to the others. Nations behaved like individual humans, only worse.

Revised Gold Standard

1925: Britain returned to the Gold Standard, its currency fixed to gold at its pre-war peg value (£1:US$4.86), even though it was in huge debts and its economy had contracted. The US patiently swallowed the injustice meted out to it.

This Gold Standard was slightly modified: the government withheld issuing gold coins (gold specie) though paper money was allowed to be exchanged for at least 400 ounces troy (12.5 kg) of fine gold (gold bullion). However, the elite business saw through the weakness of British fiscal policy and gold began to be shifted from the vaults of Bank of England to that of France and US.

Corruption and Failure of Confidence 

1929: The Stock Market in New York crashed. However it effected only 16% of the US population, and only 10% of the wealth was lost.

1930: Britain had enforced high tariffs (~25%) in all of its colonies on the goods imported from other nations/empires. The American Tariff Act also imposed high tariffs on goods imported from Europe (~50%), forcing other countries of the world to enact a similar protective tariff on imported goods. While interest rates were cut from 6% to 4%.

U.S. imports and exports decreased by some 2/3rd from 1929 to 1933. However, the effect on its GDP was trivial and Europe remained its net importer of goods. Meantime, decrease of world trade by 66% in Europe had a devastating impact as Europeans attempted to build themselves after their foolish war.

With the world’s business in its pockets, the American business politely demanded the due shift of power across the Atlantic.

‘Run’ on Austrian Bank, end of Gold Standard

1931, May: Austria’s largest commercial bank, Credit-Anstalt (CA) – founded by the Rothschild family in 1855 (a German banking family that were elevated to aristocrats in 1816), went bankrupt. CA was propped up and managed by loans from the Great Powers (Britain and France) since 1923. Bad loans were taken and given, year after year with little supervision.

When the corruption came to fore, the depositors withdrew their gold. When the Austrian government stepped in to guarantee all the bank’s deposits and other liabilities, its own credit-worthiness came into question. CA went bankrupt.

The depositors then withdrew gold from a large German bank, which too went bankrupt. The German central bank lost substantial amount of its gold reserves. The scare then touched Latvia, Turkey and Egypt.

By July 1931, Germany adopted exchange control, and went ‘off the Gold Standard’ – meaning, betraying its promise to redeem gold for its currency. The depositors then turned on the overvalued British Pound, withdrawing large amount of gold from the Bank of England’s vaults. Loans of £50 million to the British banks from French and American banks became inadequate. By September, Britain went off the Gold Standard. The New York Fed had loaned over $150 million (over 240 tons of gold) to various European Central Banks. Now, these loans became questionable once England went off the Gold Standard.

1934: The US made it a criminal offence to own gold. It forcibly nationalised all gold, held by individuals or banks, to fill its Treasury (it was lifted only in 1975; ask why?). Any contract done in gold was also declared invalid (reinstated only in 1977). Public’s refusal to part with gold meant going to jail for 10 years or a fine, or both.

Instead of the market rate of $20.67 per the troy ounce of gold, the US public were offered $35/troy ounce. In reality, the dollar was devalued at international markets from $20.67 to the troy ounce to $35 to the troy ounce (40% devaluation). With no gold to hoard money, the public and banks were forced to invest in the nation building (the US government still has more than world’s 25% gold reserves).

Effects of Going ‘Off the Gold Standard’

By 1937, no country in the world was on the full Gold Standard. However, international debt settlement was still done in solid pure gold. Gold was going into the vaults of Western governments.

The Central Banks, which were allowed to print notes in the name of its people, were required by law to have the backing of gold for the Notes they were printing. So, in the US, the Federal Reserve was required by law to have 40% gold backing of Federal Reserve demand notes.

By ditching the gold standard, the central banks could print as much money as they could without any regard to the amount of gold reserves they held in their vaults, though some were smart enough not to cause hyperinflation.

International trade took a beating, the less well-off countries saw hyperinflation, and societies demanded food and jobs. Socialism, nationalism and fascism came to dominate the politics of Europe. Europe was ready for a 4th European War (World War-2). And the US was ready to fund them, for the 2nd time.

Summary

In the 19th century, usury was accepted as ‘moderate interest’ in the name of growth and progress; Protestants began ignoring the Christian values. Then, an artificial ‘Gold standard’ was applied so as to earn off one’s accumulated gold.

With no moral values left in the 20th century, in testing times and with an opportunity to earn easy money, even gold would not be enough.