Sphere No.44 (Mar 2018)

>> Sphere #44 2018 11 government, and counterfeiting was illegal. European paper money had its origins in Sweden where the Bank of Stockholm produced paper money, in collaboration with the royal government, in 1661. It was backed by valuable metals – but not enough of them. Mismanagement saw the bank collapse in 1668, and its founder, Johan Palmstruch, was sent to jail. Back it up! As European banks took up banknotes, they were always backed by a valuable metal held by the banks. For centuries, silver had been the standard metal, in particular Spanish ‘pieces of eight’, a silver currency that emerged as the world standard rather than similar European contemporaries. One of those contemporary currencies was the German ‘Joachimsthaler’ which became ‘thaler’ and then, in English, ‘dollar’. Isaac Newton, of gravity fame, was master of the Royal Mint (of the UK) when he introduced a mixed silver-gold standard, but the UK became a gold-only backed currency by 1821. The United States was also on a bimetallic standard until silver shortages forced it, like many countries, to belatedly go for gold in 1900. The new country of Germany chose gold in 1871, and France, Japan and others followed. Everyone’s talking money! During the 1900s, people took on a greater understanding of how money could impact their lives, and it began to appear in pop culture. The book, The Wonderful Wizard of Oz (published in 1900), predated the movie by around 40 years. In the original, Dorothy wore silver shoes and walked on the Yellow Brick Road, allegories for the silver and gold standards being debated in the US at that time. Even the James Bond movie, Goldfinger , had monetary theory at its heart as the supervillain planned to irradiate Fort Knox, where the US gold reserve was held, thereby destroying the American currency base and making his own gold holdings even more valuable. Modern money While the gold standard may have become a thing of the past, fiat currency – or money by decree – hasn’t lost its hold on our imagination or our lives. Musicians query our relationship with it in song, from Money, Money, Money (ABBA), Money (Pink Floyd), to Mo Money Mo Problems (The Notorious B.I.G.). Technology has also changed how we relate to money. Credit – and access to it – has again accelerated the velocity of transactions. At one time, all extension of credit was between two parties – lender and borrower. Credit cards changed that. Give me some credit Stores had been extending credit to customers through a variety of means, but the credit card was different. The invention of the credit card is credited to a Brooklyn bank manager John C Biggins, but his ‘Charg-It’ card was only available to local residents. Other banks followed The German ‘Joachimsthaler’ which became ‘thaler’ and then, in English, ‘dollar’. and in 1950, the Diners Club card was born, starting with 27 restaurants and 200 members. American Express followed in 1958, and credit cards took off. The 1960s saw another innovation now familiar to people worldwide. Those excited by the possibilities offered by today’s ‘fintech’ (finance + technology) are reminded by old-timers that automated teller machines (known as ATMs in most places) were a big deal when they were introduced. They became widespread and saved consumers from the tyranny of banking hours. The future is here Recent years have seen another wave of technological innovation as the finance world catches up to the Internet revolution. Fintech, in the modern sense, is the brightest star in the financial world, with new business models changing people’s access to money and credit, even enabling them to become small bankers themselves, all through a device in their pocket.