Money History
The Early Modern Period

Currency in Europe entered a makeover period that was basically motivated by three impacts in the later part of the 15th century. Creative advancement during the Renaissance was responsible for the first transformation and this transformed the facade of the traditional coins. At the same time, discovery of new bullion reserves enabled a growth in the supply of money that had a wide range of effects on prices, value or quantity systems and also the utilization of money. Finally, the 'European Age of Discovery', which actually led to several new supplies of bullion, heralded just about an unbounded opportunity to discover, use up as well as make use of money. At the same time, it even laid the foundation of a new global financial system.

In addition to the above mentioned stimulations that triggered the transformation of currency in Europe, one should also consider the effect of the Protestant Reformation that not only shattered the Catholic outlook regarding the world, but also sanctioned, such as it were, the development of a new doctrine vis-à-vis money. However, as far as the outdated manner of lending money at exorbitant interest rates was concerned, the view of the Protestants was not much different that of the Catholic Church. In fact, when Martin Luther was offered equity in a silver mine, he had angrily replied that he did not want any shares and since this was dicey capital, he would not allow this kind of money to increase. It may be noted that in 1545, Calvin was found to be more obliging vis-à-vis usury and felt that money earned from interest on loans should not cause offense against any contribution or charity. According to records from the past, Calvin is reported to have said that God had not prohibited all measures to earn profits and prevent people from earning money. If God had done so, the consequences would have been terrible as no one would be able to increase or gain anything. In that event, people should also discard trading commodities, he had opined. Nevertheless, in reality this view had emerged victorious in several regards since long and the Catholic dominated Genoa would later turn out to be equally central as the protestant Geneva or Amsterdam in the evolution of currency and banking. On the other hand, the Dutch, who believed in Calvin's principles, also condemned the immorality of money-lending almost as enthusiastically as the Catholics.


Europe again witnessed a surge in supply of silver from 1460s onwards, so much so that many of the rulers owing newly discovered silver mines were virtually dining on silver tables! Incidentally, the silver mine at Schwaz in Tyrol produced so much of the metal that people began to call its owner/ ruler Duke Sigismund by the nickname 'the wealthy', whereas his father had been nicknamed 'the Penniless'. The silver mines owned by the dukes of Saxony at Schneeberg and afterward at Annaberg made them enormously rich. The silver mine discovered in 1512 at St. Joachimsthal (also known as Jachymov) in Bohemia topped all as far as production of the metal was concerned. The enhanced supply of silver bullion inspired minting of new coins. The trend was first witnessed in northern Italy that was then an important market for German silver and especially situated ideally for Venice enabling it to carry on its function in exporting silver from Europe. Venice and Milan introduced an especially heavy silver coin known as the lira that weighed approximately 9-10 grams and incorporated it into their bookkeeping system. These currencies were later known as testoni (testa denoting 'head') as a result of the new pragmatic illustration that had by then made its way in designing of coins. Soon, this trend expanded and reached France, Switzerland, England and southern regions of Germany.

For long, the primary role of the silver mine owners was to supply the metal to different mints owned by the state or other coin issuing authorities. But with the abundance of the metal in the market, the silver suppliers changed their role and began to utilize their resources more directly. Many of the silver mine owners started minting large and heavy silver coins normally each weighing 30 grams. These silver coins substituted the smaller gold coins such as the florin, ducat or others possessing similar worth. One such silver coin known as Joachimsthaler guldengroschen produced from the mine and mint situated at St. Joachimsthal provided a general or standard name for all coins of this variety - thaler. It is interesting to note that later the term dollar was derived from thaler. This development extended to new areas and new varieties of coins with the progress of the 16th century. As a result that was an augmentation in the variety of silver coins and some of them were of very high face value or denomination. New gold coins of even higher denomination topped these large and high value silver coins. As it has been for several centuries, the bullions for the new gold coins were acquired from West Africa. However, the Portuguese colonial rulers had ascertained express right to use the gold reserves in West Africa by virtue of their discoveries in the expanse during the later part of the 15th century.

This way, the silver suppliers managed to find a way around the North American and Italian agents and were themselves competent to manufacture their own silver coins called cruzados. These coins were manufactured in large numbers and had a face value equivalent to that of the ducat. In addition to an overflowing silver coinage, the Europeans now brought home the gold booty looted from the Central and South American regions. When the huge gold treasures that were amassed by the different societies in the Americas were shipped home, they led to a surge of gold coinage especially in Spain during the early parts of the 16th century.

It is important to note here that a large amount of the silver shipped home from America was on meeting the inordinate expenses incurred by the disastrous wars fought by the Habsburg monarchy. This silver was either paid as salaries of the huge standing army or more often to repay the loans taken from the bankers and money lenders in Antwerp, Genoa, Portugal and Augsburg to finance the wars. Again, a substantial part had to be shelled out to purchase commodities desired by the Spanish. Ironically enough, these commodities were mainly obtained through their Dutch agents who were then rebelling against their Spanish rulers. This was primarily owing to the fact that during that era, the Dutch not only dominated most of the trading activities in Europe, but also in many other regions of the world. However, it was evident that a reserve that strengthened a dependable asset for Spain was spent a series of non-payment of loans, technical insolvencies, undervalued currency and awful spending very much into the 17th century.

In fact, much of the silver shipped to Europe from America also went astray. By the way of the conventional routes, substantial amount of silver brought from America found its way to the Middle East accompanying the silver from Bohemia, Saxony and Tyrol. On the other hand, 1565 onwards some of this silver was transported across the Pacific Ocean to the Spanish-ruled Philippines on the Spanish ships 'Manila Galleons' or 'China Ships'. In the Philippines, this silver was used to acquire commodities from China and other regions of South-East Asia. Nevertheless, the silver supplies from Central and South America to Spain steadily reduced from the 17th century owing to a number of factors, including lesser production by the silver mines in the Americas and withholding of the metal for local use by the colonial rulers. All these notwithstanding, the American silver has played a significant role in the European monetary system throughout the 18th century. Discovery of new silver mines coupled with enhanced technology helped the American mine owners to breathe life into the silver production.


It has been noted that the augmentation in the supply of bullions was closely intertwined with the most remarkable financial condition during the 16th century - the supposed 'Price Revolution'. This incident led to inflation between approximately 1540 and 1640 raising the prices of different commodities as much as six times. While this may appear to be a regular affair in present times, but such steep price rises were perplexing during those days. Putting things in the right perspective, it needs to be mentioned that there was very little difference in the prices of commodities in 1300 and 1500 and again the prices were comparatively stable between 1650 and 1750. But they skyrocketed during the 100 years between 1540 and 1640. While many experts do not agree with the view that the surge in bullion supplies was responsible for the inflation during this period, one cannot overlook the timing of the price rise and the enhanced bullion supplies as a mere concurrence. The effect of the inflation was worsened further as there was no corresponding rise in the wage levels. For example, the actual wages were in effect reduced to almost half owing to the impact of the price rises between the latter part of the 15th century and the middle of the 17th century. In addition to this, during the 16th century, people were burdened by imposition of enhanced taxation. Although taxation had by now become a standard mode of collecting money from the people to run the affairs of the state, in reality, the money collected as taxes was distributed among those who were politically and financially privileged instead of the state spending the amount on providing wide ranging services to the people in general.

On the other hand, the augmented supply of bullions following their shipping from the Americas had some specific impacts on the coinage itself. The arrival of the new bullion in Europe influenced two correlated factors of the coinage - the usage as well as the arrangement of the coins' classification. Firstly, the variety of coins in large and small values underwent a widespread expansion. New and larger silver and gold coins were brought in during the later part of the 16th century. In the different states of Italy gold ducats and scudi were replaced by silver ducatoni, scudi and piastras, while the doppie or the 'double ducats' were used more and more compared to the average gold coins. On the other hand, in England gold crowns and half crowns were substituted by those made with silver and the gold 'one pound and '30-shilling' were the top denominations. The Spanish 'piece of eight' and gold double escudo, also known as the 'doubloon', emerged as well-known coins across the globe in the same manner as the Dutch Republic's daalders and double ducats became globally familiar coins during the 17th century. All these notwithstanding, many states still continued minting gold coins similar in valuation with the ducats produced by Venice with a view to use them in international transactions. However, from this period onwards, the Venetian ducats came to be known as the zecchino or the sequin. The states that still produced such gold coins were the Swedes, the Dutch, the Danes and the Poles. In addition, Hungary, Austria, the Holy Roman Emperor in Bohemia and many smaller principalities in Germany also minted gold coins that had equal face value as the Venetian ducat.

The new bullion also led to an increase in the assortment of coins in the intermediary values within the fiscal system. While earlier there were around six or eight intermediate denomination coins, it increased to 10 or 12 in majority of the states following the new bullion supplies. This phenomenon enhanced the suppleness of the categorization of the coins structure in the market and indicated a rapid growth in the intensity of day-to-day business dealings and facilitated making instantaneous reimbursements. In addition to these coins, the older coins also occasionally existed in the monetary system and their value was formally depreciated or they were accepted in transactions depending on their weight and purity of the metal. For instance, the Second Coinage unites of James I that were initially valued at one pound (20 shillings) were later issued in exchange of 22 shillings along with the lighter unites of Charles I that were valued at one pound during Stuart England. In Spain, the older versions of four maravedis were first depreciated and counter-marked to 8 and later to 12 maravedis during the regimes of Philip III and Philip IV when the state witnessed an unbridled devaluation and over issue of coins of lesser denominations during the 1620s and 1630s.

The impacts of the inflation during the 16th century and 17th century notwithstanding, coins of lesser face value not only managed to carry on, but, in effect, were more widespread in use indicating that these coins were utilized by individuals more often in carrying out business deals in lower-scales. When states like Venice, Portugal and Naples revived the copper coinage in the 15th century, it, in effect, heightened the use of these smaller denomination coins. Gradually, during the 17th century, the use of the smaller value coins along with the copper coins spread to other regions of Europe, including France, Italy, Spain, England, Scotland and the Low Countries. Managing a token coinage in the system of a precious metal coinage was hard indeed and occasionally it tossed beyond control by means of over issuance and the impacts of faking, which was extensive in the 17th century England as well as France. The impacts of counterfeiting actually were inclined to send away the good or genuine money from the market. Different governments endeavored to tackle this menace in various ways, including demonetization or withdrawing money from the market, controlling the circulation or issuance of coins, holding back the status of the currency as a legal tender thereby making payments by the currency not being obligatory, as well as by reducing the face value of a currency or 'carrying it down'. Despite the menace and difficulty in managing it, token money was so useful that it was not feasible to discard it. For instance, in the 1640s, England stopped minting the royal farthings and several thousand local coins issued privately replaced the farthings.

Sweden, particularly the great Falun mine, was the primary resource for copper in most European states. As the demand for copper increased, it improved the revenue earning of the Swedish monarchy so much so that it helped the country to play a prominent role politically as well as militarily in the Europe of the 17th century. With a view to sustain the copper prices at practical echelons, Sweden used up substantial amounts of the metal produced by the country. As a result, Sweden pioneered a non-token copper coin that is known as the famous 'plate money'. The 'plate money' was a procedure whereby sheets of copper were sealed by means of dies to denote their worth vis-à-vis the silver dalers. The value of each of these 'plate money' ranged between one and 10 dalers. As it was not only difficult, but also impractical to deal with such weighty currency, during the middle of the 17th century, Sweden intelligently introduced the use of paper currency to replace the 'plate money'.

The variety of monetary systems in Europe increased with the augmentation of the colonial area and commercial activities in those regions. Many people increased their money by endowing it in business enterprises. Investing in international coinage that was not meant for use in their country provided an impetus to this business. During the 17th century, the most popular coins for such investment were the 'piece of eight' of Spain and the Dutch Republic's trade coins such as leeuwendaalders and rijksdaalders. While people in Asia and the Levant had a preference for the former Dutch trade coins, the later were more popular in the Baltic region. At the same time, the silver ducats produced by the Dutch Republic were preferred in India and China, while the gold ducats were a favorite of the Russians. Notwithstanding the eminence of the 17th century as the 'great age of state bullionism (a system enabling direct conversion of currency to gold or silver)', selling precious metals overseas was an important part of trade during this period and this was truer in the case of the Dutch Republic. In addition to the 8-reales piece and the leeuwendaalder, another silver coin gained prominence as a trade coin during the 18th century. This third coin was the Austrian thaler whose manifestation was fossilized from 1780 resembling the Maria Theresa thaler. Nevertheless, from the middle of the 18th century, this Austrian silver trade coin was extensively used in Ethiopia, the Levant and Arabia.

Even as these developments were taking place in different regions of Europe, many European states ventured to export their currency and fiscal systems all over the world. Several European states, including Portugal, France, the Netherlands, Britain and Denmark, set up their colonies and base for operations in different region of Asia with a view to step up as well as defend their respective trade routes. These foreign settlers only introduced the Western currencies in the Asian regions, but also blended them with the native traditions to such an extent that soon these currencies began to manipulate as well as dominate the local institutions. In the new development, called the 'New World', trade extended beyond the Atlantic and in most instances the European colonists directly took advantages of the local resources of the new continents they occupied. For instance, the Spanish settlers in Central and South America established mints near the main mines discovered or occupied by them with a view to utilize some of the silver output in producing coins. Initially, the measure was undertaken with a view to facilitate the shipment of the metal to Spain, but later set up new mints to meet the requirements of the increasing number of the Spanish settlers in those places.

Contrary to the Spanish settlers in Central and South America, the early French and English settlers in North America and the West Indies did not receive much support or did not have much local resource during the 17th and 18th centuries. As there was scarce local bullion for minting coins, these English and French immigrant communities had to adopt several measures to fulfill their currency requirements. Their condition worsened as the governments back home also refused to send valuable metal coins outside their home countries. In such a situation, the English and French settlers in North America and the West Indies often used the Spanish coins. These coins were occasionally cut into pieces, sealed, plugged up or perforated to demonstrate different denominations while carrying out any transaction.

The 18th and 19th centuries witnessed a new development in the monetary system with the introduction of paper money. As time passed, paper money was used more and more alongside coins as currency. Nevertheless, unless there was any obligation, coins were still preferred by most people as a mode of currency to carry out day-to-day transactions. At the same time, in urgent situations people chose coins over paper money for the purpose of stacking and saving. In the early 18th century, experiments undertaken with paper money that was mostly backed by the governments proved to be disastrous in many instances. In a way, this made certain that the concentration of the official supply of money was on coins. Although this system appeared to be steadfast, it also gave rise to several difficulties in bullion supplies, worries of using two metals to mint coins and even ascertaining sufficient and dependable coins in small denominations.

Paper money

Johan Palmstruch of Livonia is credited for developing the first liberally circulating banknotes of Europe. Incidentally, in 1656, Johan also established the Stockholm Banco in Sweden. The early success achieved by Johan and the events that led to his failure later not only serves as a fascinating story, but given the perspective of history, it may also have served as a significant warning to the succeeding business enterprises in other places. Although the Stockholm Banco was a privately owned firm, but in reality it enjoyed an intimate relation with the government. The Stockholm Banco was established under a royal dispensation and 50 per cent of its net proceeds had to be paid to the monarch, while the chancellor or the state exchequer was the principal inspector of the bank. Moreover, Johan Palmstruch was cautious in discussing with the government on the characteristics of the notes issued by the bank in 1661.

As discussed earlier, the famous plate money pioneered by Sweden was aimed at maintain the price of copper extracted from the state's Falun mine at reasonable rates. But, in effect, these copper plates were enormous in size, heavy, problematic to use and they also decreased in value as some of the copper wore out with the passage of time. With a view to overcome this problem, the government issued 'credit notes' as an intermediary and substitute money. Initially, this measure undertaken by the government was immensely successful, but it soon began to reveal the adverse effects. As the bank had provided credits in excess by issuing excessive banknotes, after a few years it was no longer in a position to convert the credits. Along with this misfortune, Johan Palmstruch now also faced the ire of the monarchy. The government set up a probe panel in 1667 and its findings revealed that Johan Palmstruch was accountable for bungling the bank's affairs and was directed to reimburse the money he owed to the monarchy. Ironically, the Crown that had bestowed favors on Johan Palmstruch earlier now punished him with a death penalty. However, eventually Johan did not have to go to the gallows as his punishment was converted to a prison term.

The first banknotes issued by the British colonizers in North America were also the first instance of any government circulating paper currency in the West. In fact, the constraints of the government authorities and the varied blessings of the initial paper currency were obvious in this case too. Developing a new form of currency for local circulation became essential for the British colonies in North America as they were plagued by a constant scarcity of coins that led them to rely a great deal on bills of exchange for trade. It is important to mention that the Massachusetts Bay Colony was the first to produce and issue paper bills in 1690 with a view to funding it military campaign against Canada. While many other states emulated Massachusetts Bay Colony and issued paper bills to fund and sustain their respective military expeditions, on many instances, the paper bills were also utilized for undertaking benevolent projects such as building projects of the municipality or even paying off public liabilities. Although these bills were issued by the state authorities ensuring an official status to them and certain incentives were allowed for using these paper bills, the common people were in two minds regarding their usage. It may be mentioned here that the authorities in Massachusetts offered a five per cent incentive to people paying taxes with these paper bills.

On the other hand, the trade value of these paper bills within and outside the colonies varied frequently. In addition, the worth of the paper bills issued by many colonies diminished owing to surplus issuance of the notes and also due to devaluation. A writer of that era who supported the use of paper currency felt sorry for the fact that paper money was already losing ground to silver in Massachusetts even at an early stage in 1691. However, he was of the view that the difficulties could be resolved through confidence and compromise. He wrote that if the knowledgeable people who carry out regular transactions would take the pains of meeting together to discuss, concur, and come to a conclusion as well as work towards providing an impartial status to the paper bills, the entire would soon join with them in accepting these paper notes as an effective mode of currency. In fact, this policy was adopted by many banks in Britain later to salvage them from confronting a scurry of worried clients. However, very few people were ready to accept the policy in 1691 as the majority could not be convinced to accept the writer's views.

It is hardly surprising that most of the initial efforts to issue paper money were possibly susceptible to failure as they were merely experimentations carried out in circumstances of political or economic disorder. However, the first permanently flourishing banknote issuers in the West have made it obvious that even the adverse conditions could be adjusted and overcome if things were tackled properly. These banks included the Bank of England founded in 1694 and the Bank of Scotland established in 1695. As the Bank of England was founded at a time when the country was not only facing a monetary crisis, but was also in a prolonged war with neighboring France, it was very natural that the main function of the banks was to provide loans to the government that was short of funds to finance the war. The bank had lent this money to the government as a 'Fund for Perpetual Interest'. In the following year, enactment of a law by the Scots Parliament led to the establishment of the Bank of Scotland acknowledging the fact that a public bank would be helpful for the kingdom that was plagued by insufficient supply of coins, limited credit resources and disastrous agricultural outputs for successive years.

It may be mentioned here that several important differences existed between the Bank of England and the Bank of Scotland, particularly when it came to their links with the state. For instance, while the Bank of England took care of a great deal of the government's business, the Bank of Scotland was specifically not allowed to lend money to the state. Apart from these dissimilarities, there were a number of parallels between the two institutions too. Both the banks developed from plans that were being mulled over prolonged periods and aspirations of single planners who functioned with the backing of prominent business associates. Most importantly these entrepreneurs primarily functioned on the joint-stock principle (having a blend of features of a corporation and partnership) with an extensive capital base contributed by numerous shareholders. Soon after their establishment, both the financial institutions commenced circulating their own banknotes and it has remained the primary function for both the banks uninterruptedly for over three centuries in spite of the challenges that came in their way from time to time during this exceptionally long period.

All paper money circulated in the West in the initial stages was basically experimental or unsubstantiated. None of these paper currencies had any recognized method to fall back on. Although there was no other option, experience had taught that this could be a very risky or disastrous for the banker as well as the customers. Pondering over the manifestation of a fiasco may seem to be an easy task, but it must be remembered that the unproductive projects of Johan Palmstruch were also successful to some extent initially and strongly presaged the form of the banknotes that were to be issued by the central banks at a later period. In addition, it needs to be mentioned here that while the initial forms of the paper notes like the bills of exchange were primarily used by traders and monetary negotiators known as financial agents, during the 17th and 18th centuries, paper currency proliferated to all strata of the society and was used extensively by the people to carry out all their transactions.

As the forthcoming upheavals would shortly demonstrate, the threats of unbridled issuance of banknotes still loomed large. However, by the time the 18th century came to a close, paper currencies were being used in approximately 20 nations across the globe. Apart from the banks owned by the state, several private parties began to circulate paper currencies. Many of the European powers too issued paper currency for use in their distant colonies. During the subsequent two hundred years advanced transformations took place vis-à-vis in the conditions of circulation. While it was more a case of trial and convenience till now, in the next two centuries, the circumstances changed to consolidation and regulation. This perhaps realized the counsel of Adam Smith who had suggested the 'replacement of paper in the room of gold and silver currency'.

Wrapping up

From the above discussions we have learnt that currency went through several momentous transformations between the 16th and the 19th centuries. While the 16th century witnessed a surge in bullion supply and introduction of token money, during the next two centuries centralized banking system and issuing of bank notes or paper money may be considered as two significant events in the history of money. Over the years, more and more varieties of currencies in different forms came into circulation and these carried out different purposes for different people. In the initial stages of currency, people's perception regarding money was basically religious in nature and ethical in attitude. It was still difficult to detach people's views about money from the deep-rooted fretfulness of the Christians regarding accumulating surplus riches and God's verdict on the unmerited wealthy people.

However, after this phase ended, laws made by men and the earthly authorities developed the theoretical a set of doctrines within which the different characteristics of money was debated. Gradually, people started putting forward realistic ideas regarding the nature of money and its role in the society. One the one hand, this was a consequence of the probable improvement and experimentation with money; on the other hand, it also motivated the same processes. The present perception regarding money was delayed substantially owing to the complications related to the validity of money, for instance, as it was during the uncertain early phases of issuing banknotes. However, with the passage of time there has been an irreversible change regarding people's perception about money and its use. As the next two centuries would reveal, the deep repercussions of such logical change would actually be put into practice.

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