By Dr. Bryan Taylor, Global Financial Data Chief Economist
In 1999, the Euro replaced twelve currencies, creating the second most important currency in the world. The Euro reverses one of the trends among currencies in the Twentieth Century, which was to allow each country to issue and control its own currency, regardless of the economic logic of doing so. This will be a monumental change in the financial world and may foster a trend toward a reduction in the number of world currencies.
At the beginning of the century, only a handful of countries had central banks. Colonies of European countries issued banknotes that were tied directly to the European currency, usually through a currency board or used coins and currency of the mother country or of other countries. In some cases, there was no legal tender in a country, and people used whatever coins or banknotes were available. The Indian Rupee, French Franc and British Pound Sterling were world currencies in the early Twentieth Century in the same way that the United States Dollar is today. As the number of countries in the world increased during the 1900s, so did the number of currencies. New countries introduced their own currency as a symbol of their newfound sovereignty.
The Twenty-First Century may see a reversal in the multiplication of currencies. Europe is leading the way by introducing the Euro in twelve countries. Ecuador has replaced its Sucre with the United States Dollar, and Argentina has linked its currency to the United States Dollar. Hong Kong, Bulgaria and other countries rely on currency boards, as did European colonies before World War II to stabilize their currency.
Currencies exist more for political reasons than for economic reasons. Money exists to provide a stable economic environment and foster economic growth, but history has shown that many governments have used the national currency for political ends, destroying their currency in the process. If the primary goal of any monetary system is to provide a stable economic environment and control inflation, it is questionable whether the world needs 150 currencies.
There is an area of economic theory that tries to determine the optimal currency area for a geographic, economic or political region. Optimal currency area theory asks at what point is one area economically different enough from another geographic area to justify having a separate currency? Should India have several currencies or one? Is the Commonwealth of Independent States better off with 15 different currencies than having a single Ruble under the Soviet Union? Should Europe have a single currency or many currencies? In the real world, these questions are rarely answered from a rational, economic point of view, but almost always from the viewpoint of what is in the national political interest.
This history of global currencies reveals the folly of national governments trying to manipulate their currency to their economic or political advantage. As you will see, the result has been a graveyard of currencies that died ignominous deaths at the hand of politicians. Most countries had to abandon their currency at one point or another during the Twentieth Century. And even those countries that went through the entire century without changing their currency suffered historically unprecedented rates of inflation.
Every collapse of a currency was accompanied by high economic costs. Financial assets became worthless and the inflation that preceded the demise of the currency forced people to spend more time trying to compensate for the economic costs of the inflation. Usually, when the government introduced a new currency, it limited its citizens. ability to convert the old money into new. One goal of this history is to show, through the sheer mountain of evidence, what went wrong in the Twentieth Century to prevent a repeat of these mistakes in the century to come.
The first section of this history provides a brief overview of the changes in national currencies over time. This section lays down rules for determining when a currency is a currency. This section also describes the system of coding for both country codes and for currency codes, how the ISO system works, and how we have changed the ISO system to create historical currency codes.
The second section provides a history of each currency. Few people, outside of their own country, are familiar with the histories of other countries. currencies. We provide both a verbal description of each currency and tables that summarize the monetary history of each country. The tables provide a list of all two-letter country codes, a list of all three-letter country codes, a list of all currency codes, and summary currency histories for each country.
The political histories that preface the currency histories are provided as a background to the currency changes that occurred. We do not try and document all political changes that occurred, but primarily the ones that impacted the financial history of each country.
The individual currency descriptions provide chronological histories of all countries that existed during the twentieth century. The histories detail the political and currency changes that occurred in each country, providing dates when these changes occurred, the exchange or conversion rates for those currencies, the subdivisions for each currency, and whether coins and banknotes were issued for those currencies.