The decline of a nation’s money often parallels the decline of the nation. Rome’s money stands as the classic example; Great Britain’s pound is the contemporary example.
In Rome’s final days, its coins were debased, minted with reduced amounts of gold and silver. Consequently, the people astutely took note of which coins contained the greater amounts of gold or silver, but the Senate took typical government action. It made it illegal for a merchant to ask a buyer with which coins he was going to pay.
Fast forward to today.
This year, for the first time, prize money for the British Open golf tournament was not paid in British pounds but in US dollars. The total purse was $10.25 million, with $1.845 going to the winner, Jordan Spieth.
The Royal and Ancient Golf Club of St. Andrews, which runs the 157-year old tournament, reasoned that because the Open is an international event (156 golfers from 28 countries this year), it was appropriate to pay in the world’s most recognized currency.
Still, it must have been ego-deflating for the Brits to see their pound, which was once the world’s esteemed money, be shoved aside for the currency of a country that started as a British colony.
At its height, the British Empire spanned the globe. Indeed, the Brits were fond of saying that “The sun never sets on the British Empire.” More accurately, “The sun never sets on the graves of the soldiers who invaded those foreign lands.”
The list of places that once were part of the British Empire is long and includes some of today’s important nations, such as India, Canada, Australia, Hong Kong, South Africa, Singapore and, of course, the United States.
The Brits were once mighty, but how they have fallen, and nothing shows just how far a nation has declined like the rejection of its currency.
During their heyday, the Brits’ money was gold, generally taken from regions they invaded and occupied. Their first machine-struck, mass-produced gold coins were the guineas, with the one-guinea containing approximately one-quarter ounce of gold. The coin was so nicknamed because it was minted from ore taken from the Guinea region in West Africa.
The guinea was produced from 1663 to 1814, a 151-year run. One-half and one-third guineas were also minted. In 1774, almost 20 million worn guineas were melted and re-struck as guineas and half-guineas. That was a time when nations took pride in the quality of their money, sadly a time long passed.
British sovereigns, also just shy of a quarter ounce of gold at .2354 oz. each, replaced the guineas and were minted in volume until the heavy cost of the Brits’ military quests began to weigh on them. Although the British Royal Mint today produces sovereigns for the bullion coin market, it quit producing sovereigns for general circulation in 1917. These magnificent coins were produced in at least eight mints around the world.
By the end of WWII, Britain was basically drained of its gold, and the 1944 Bretton Woods Agreement switched the world from gold to a dollar/gold standard. At that time, the dollar was “as good as gold,” because it was redeemable in gold and it was widely accepted [=that it would always be redeemable in gold. After all, the US then controlled two-thirds of the worlds’ official gold holdings.
The Brits produced a money of which they were proud. For a while, so did the United States. The US, though, was on a gold-backed monetary system for a short time compared to how long Great Britain used gold as money.
Richard Nixon ended the US gold money reign August 15, 1971, when he “closed the gold window,” a euphemism for reneging on the US’s promise to redeem its paper dollars in gold as agreed in the Bretton Woods Agreement.
What other choice did Nixon have? European countries were lined up to empty the vaults at Ft. Knox. In fact, we don’t really know that Ft. Knox’s vaults are not empty today. The last time our gold holdings were audited was under the Eisenhower administration. Since then, the only “audits” have been by the gatekeepers themselves. Any wonder that the Fed and the Treasury Department so vigorously oppose Ron and Rand Paul’s calls for an audit of the Fed?
The British pound declined to where it is no longer used to pay the prize money for the world’s most prestigious golf tournament. The dollar, although the world’s most used currency as The Royal and Ancient Golf Club says, is also in decline. The dollar is created at will, with no backing whatsoever, except for the “full faith and credit of the US government.” Lots of luck there.
First prize for the inaugural British Open golf tournament in 1860 was £10, and the winner most likely was paid a handful of gold guineas. What if the R&A again paid the British Open winner in gold? Jordan Spieth would have received approximately 1,410 one-sovereigns, or 332 troy ounces of gold.
Imagine the presentation. Security guards carry a lock box to the podium, followed by two R&A executives each bearing a key. They ceremoniously open the box, and the security guards pour the coins on a table. For a moment, Brits could again be proud of their money.
No currency is now redeemable in either gold or silver. With no limits on how many dollars the Fed can create, investors can only plan, scheme and maneuver to keep their assets from being wiped out when the Fed eventually prints dollars until they become worthless. That is the history of paper money.