Washingtonpost.Newsweek Interactive, LLC

Making ChangeAuthor(s): Bryan TaylorSource: Foreign Policy, No. 143 (Jul. - Aug., 2004), pp. 30-31Published by: Washingtonpost.Newsweek Interactive, LLCStable URL: http://www.jstor.org/stable/4152907 .

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SPRIME SNUMBERS

Making Change ore than just an economic instrument, currency has come to embody sovereignty and national

identity. It offers an important window into the history and culture of peoples, empires, and

nations. But money is constantly evolving. During the past several thousand years, coins replaced barter, then checks and paper money replaced coins, and now electronic commerce is supplanting paper trans-

actions. Rapid technological change soon may render paper money obsolete and diminish currency's role as

symbol of sovereignty. i By Bryan Taylor

Follow the Money Ca. 650 "Flying Money" appears in China. The system gives merchants access to gold and silver in distant cities.

752 Pepin the Short issues silver pennies later popularized by his son Charlemagne.

1780 B.C. Code of Hammurabi describes payments in weighted amounts of silver.

221 B.C. China's first emperor, Qin Shi Huang, unifies China's monetary system.

696 Islamic caliphate distributes gold dinars.

1023 Tian Shang introduces a government monopoly for paper money in China.

1717 Britain adopts the gold standard.

1661 Johan Palmstruch issues the first paper money in Europe through the Stockholm Banco.

1252 Genoa, Florence, and Venice (1284) issue gold coins.

Venetian ducat

1866 Trans-Atlantic cable allows money to be sent rapidly between Europe and the United States.

1500s American silver and gold begin to flood the world.

Ca. 1300 "Ghost Money" system employed in Europe to keep track of debts over time, even as new currencies made the old ones obsolete.

1933 United States abandons the gold standard.

1973 United States severs all links to gold.

1999 Euro enters circulation.

20 euro note

20 ae

1969 The International Monetary Fund introduces Special Drawing Rights. This artificial reserve asset has been used primarily in transactions between central banks.

2003 In-store electronic transactions surpass paper transactions in the United States.

Bryan Taylor is chief ecoCn-

onijst of Global Financial Data Inc.

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The Old Euros Centuries before the euro, various currencies circulated well beyond national borders, even without formal monetary union. In many cases, currency followed empire. In other instances, the ubiquity of certain currencies made them a convenient mode of exchange, with or without colonial ties.

The silver tetradrachms of Athens, known as Athenian Owls, were used by other Greek city- states from the sixth to the first century B.C. and became a symbol of Athenian power.

From the reign of Constantine I in 306 to the fall of Constantinople in 1453, the Byzantine solidus was the basis of the economy through- out the Mediterranean and the Middle East.

The Spanish flooded the world with silver dollars, primarily with silver from Mexico and Peru. These coins became a model for curren- cies in the Americas and many parts of Asia.

Face Value Historically, rulers and govemment leaders have appeared most frequently on bank notes. Today, many countries also feature artists, writers, and other cultural figures on their currencies. With a few exceptions, the only living persons that appear on bank notes are royalty and dictators.

Figure Heads Number of issuing authorities depicting selected individuals on currency*

In Dollars We Trust Although there are some 150 currencies worldwide, only a handful are used as national reserve currencies. The U.S. dollar remains the leading reserve currency, and its dom- inance appears to be increasing. In 2002, almost 65 per- cent of the world's $3 trillion in foreign reserves was held in dollars, up from 50 percent in 1990.

Reserve Currencies Worldwide national reserve funds, by currency (in %)

. Columbus depicted on a 500 Dominican peso note

4 4 2

Queen Christopher Sim6n George Vladimir Elizabeth II Columbus Bolivar Washington Lenin

* Issuing authorihes include past governments and some colonial possessions.

U.S. dollar

Euro

Japanese yen British pound

Other Source: International Monetary Fund. 2002

Cashing Out? Until recently, cash remained the most practical medium for everyday transactions. By 2020, electronic exchanges may represent more than half of the value of total U.S. transactions. Similar trends are evident in Europe.

E-money Takes Off ? Current and projected value of U.S. transactions by payment method (in %) 56

43 39

27 23 25 Che" 19

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Source: Nilson Report. April 2002

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