Читать книгу Islamic Finance and the New Financial System - Alrifai Tariq - Страница 10

Throughout history, gold and silver have been the most common form of money. In many languages, such as Spanish, French, and Italian, the word for silver is still directly related to the word for money. Although gold and silver were commonly used to mint coins, other metals were used, such as iron and copper.

The earliest known records of gold and silver being used for monetary exchange date back as far as the third millennium BCE, when gold, specifically, was used in Mesopotamia and ancient Egypt.12 The first gold coins were minted in Lydia (modern-day Turkey) during the Grecian age around the year 700 BCE.13 By the fourth century BCE, coins had become widely used in Greek cities. The coins were supported by the city-state authorities (the issuing authorities), who strived to ensure they retained their value regardless of fluctuations in the availability of whatever base precious metals they were made from.

Once well-established in Greece, the use of coins spread slowly westward throughout Europe and eastward to India. By the second century BCE, coin usage in India had become central to commercial transactions. Monetary systems that were developed in India were so successful that they spread through parts of Asia well into the Middle Ages. During the fourteenth century, much of Europe had converted from use of silver in currency to minting of gold.14

Metal-based coins had the advantage of carrying their value within the coins themselves. One disadvantage, however, was that they could be manipulated. The clipping of coins was a fairly frequent practice. The clippings were then traded and recycled. Governments, over time, also had the habit of diluting the precious metal content in coins, such as blending copper with gold or copper with silver. This, of course, caused inflation and, in some cases, loss of faith in the issuing authority. Governments did so because they were short on precious metals and had bills to pay.

A bigger problem was the use of coins made of different metals – copper, gold, and silver in Europe. Gold coins, for example, were valued more than silver coins, and silver coins were valued more than copper coins. In England in the 1670s and 1680s, the gold-based guinea coin began to rise against the English silver-based crown. The huge amounts of gold coming into Europe from discoveries in the New World shifted trade away from silver and into gold. In Asia, the situation was the opposite: Gold was leaving for Europe in favor of silver. Some prominent Europeans such as Isaac Newton, Master of the Royal Mint, were uneasy about these movements, as they created instability and made it difficult to value one metal over another.15

Soon thereafter, national banks were set up to bring stability to the system by guaranteeing to change money into gold at a promised rate. This, however, did not come without its own challenges. The Bank of England came close to a major financial crisis in the 1730s when customers demanded their money be changed into gold at a moment of crisis. The crisis was avoided only when London's merchants saved the national bank with financial guarantees.16

What's important to note about this period is that money evolved from being a unit of weight to being a unit of value. A distinction could be made between its commodity value (i.e., its weight in gold) and its specie value (its value in the market).17