This section covers the emergence of reserve currencies and central banks, beginning with the evolution of global reserve currencies.

Precious metals, especially gold and silver, have long been considered the basis of wealth and power in empires. The thirst for gold has always been a dominant driving force, and it was the influx of precious metals that had the most direct and obvious effect on monetary developments in Europe. In medieval and early Renaissance times, this obsession with gold and silver was due to the difficulty of retaining value in other forms of merchandise, as well as to the strong demand from foreign powers, particularly in trade with the Orient.

Over the centuries, several empires have succeeded one another as global economic centers. The country that dominates world trade during a given period is usually awarded reserve currency status. These include:

Portugal dominated world trade in the second half of the 15th and early 16th centuries, with the Portuguese Real, a silver coin of relatively uniform weight. The Portuguese, thanks to their advancements in navigation, found new sea routes to Africa, Asia, and the New World. Military forts and trading posts multiplied from Africa to China (Macau).

In response to Europe's demand for gold and silver, "the constant motivation for the great discoveries was commercial profit, particularly the pursuit of gold and silver." However, the Portuguese Empire, overextended and facing competition from the Dutch, English, and French, began to decline.

The image above shows a Portuguese half-Real from the time of these Maritime conquests.

With the conquest of the New World, Spain became the dominant player. Its monarch, controlling gigantic silver mines (Potosí in Bolivia, Zacatecas in Mexico), succeeded in minting money in pure silver, thus avoiding depreciating his own currency: the Spanish Real.

The Spanish real, also known as the "piece of eight", got its nickname because it was often cut into eighths to create smaller coins. It was also known as the Spanish dollar. The coin shown above dates from 1814, making it a slightly more recent example. The very first Spanish dollar coins were hammer-struck and generally less round and crisp.

The Spanish dollar served as the international reserve currency of the time. The Spanish authorities also issued their own local currency, the maravedi, and regularly adjusted the money supply through recalls. For example, a copper or bronze coin initially worth one maravedi might be recalled and stamped with "2," then later with "4," and so on, potentially reaching "8." In the high-resolution photo, the "8" stamped on the coin is clearly visible. This method effectively expanded the money supply, which inevitably led to inflation.

An interesting pattern emerges from the history of reserve currencies: empires did not inflate their currencies as long as they retained their reserve currency status. They only tended to devalue their currency at the end of their dominance, causing them to lose the privilege, which was then passed to a new empire.

In Spain, the Spanish dollar dominated world trade for almost 200 years, particularly between China and Europe. These coins could even be found in Chinese ports. And that's where we get a wink from history: the American dollar comes directly from this currency. When the United States was formed in 1792, it passed a law to mint its own currency, and its first dollars were created on the model of the Spanish dollar, both in name and coin size.

To give you an idea of its value, an American dollar was originally a silver coin weighing almost an ounce, or between €30 and €40 in today's money, unlike the paper currency we know today. As for the Spanish dollar, it circulated so widely that it is considered the first true global currency.

But—and this is a crucial point—this massive influx of precious metals from the Americas wasn't without consequences. It triggered significant inflation across Europe. Just to give you an idea, during the Price Revolution (c. 1540-1640), the cost of living in England increased sevenfold. In Spain, the abundance of silver had a perverse resource curse effect, hindering the development of solid banking institutions.

Subsequently, Spain faced numerous military conflicts (Flanders, Netherlands, Thirty Years' War), and its finances gradually collapsed. Instead of devaluing the world-renowned silver coin, successive rulers chose to default on or depreciate the copper coin (vellón) used by the local population. This is what I described earlier with the Maravedis.

After the Iberian apogee, the Netherlands emerged as a new commercial power in the 17th century. Maritime trade, the VOC (Dutch East India Company), and the founding of the Amsterdam Stock Exchange (inspired by the one in Antwerp) established this merchant republic as a hub.

This first photo above shows a Gulden from 1722, while the second shows a coin issued by the VOC.

The VOC was an extremely powerful company for its time: it had its own army and even issued its own currency.

The Dutch invented modern capitalism, which began as a means of distributing risk in risky ventures such as expeditions to the New World or the search for new trade routes. Joint-stock companies enabled several investors to pool their money and share the risk. To facilitate these exchanges, institutions capable of negotiating and exchanging these securities were created. Thus, in 1602, the first joint-stock company and stock exchange were established.

Dutch currency, the Gulden, gained credibility thanks to its purity in silver, and then to its adoption by the Bank of Amsterdam (1609), where deposits became a preferred form of money in Europe. This was a significant banking breakthrough: while coins existed, much of the world's trade was conducted as scriptural money through the accounting records of the Bank of Amsterdam. International trade was no longer necessarily conducted with physical coins, but directly through the bank's ledgers.

This period of prosperity was marked by a large influx of gold and silver, particularly from other countries practicing inflation or monetary control. An important figure from this period is Thomas Gresham. At this time, he worked for English royalty in the Netherlands, managing the flow of money between the two countries. This is the same Gresham who gave us the famous Gresham's Law.

Nevertheless, the Dutch Empire also eventually ran out of steam. Wars with England, the debasement of the gulden in times of conflict, and competition from other powers (France and England) signaled the end of Dutch hegemony. After the Fourth Anglo-Dutch War (1780-84), the decline of the gulden as a reserve currency became irreversible.

Under Louis XIV, France became the greatest continental power in Europe. However, the French currency never achieved the status of a dominant reference: numerous devaluations, heavy taxation, and costly wars (the League of Augsburg, the War of the Spanish Succession, etc.) weighed heavily on the stability of the monetary system.

The first major experiment in paper money was conducted by John Law (1716-1720). The Banque Générale issued bills backed by promises of government debt. This scheme led to a speculative bubble and collapse (the Mississippi Bubble) in 1720. This disaster left France with a lasting distrust of paper money. It was this disastrous experience that allowed Richard Cantillon to become wealthy by applying the principles now known as the Cantillon effect, where money printing enriches those with closest access to the new money.

When this mistrust finally faded, another French paper fiasco: revolutionary assignats. Issued from 1790 onwards based on the confiscation of clergy property, these assignats experienced galloping hyperinflation, making them officially the first hyperinflation in history to exceed 50% per month. In 1795, although their face value had been multiplied, they were trading at just a few percent of their initial value.

More restrictive laws sought to impose the assignat, but without success. The government attempted to force its use, even threatening with death those who refused to accept it and compelling shopkeepers to remain open, but these measures ultimately failed.

As this paper money replaced all the quality precious metal coinage, aligning with the famous Gresham's Law, a coin shortage ensued. To mint new coins, they used bell metal seized from the clergy. The image below shows a piece of bell metal, crafted from copper recovered by melting down the bells taken from the clergy.

England, having overtaken the Netherlands, became the dominant power in the 18th century. The pound sterling is the oldest currency still in use, originally linked to a pound of silver. Gradually, its status grew stronger, underpinned by a financial and fiscal revolution: parliamentary monarchy, strong tax-raising capacity, and the creation of the Bank of England in 1694.

After a series of wars against France, the United Kingdom emerged victorious in 1815 (Waterloo), confirming its supremacy. Throughout the 19th century, the pound sterling acted as the world's reserve currency. At its peak, with just 2.5% of the world's population, Britain produced 20% of global income and controlled almost a quarter of the earth's surface.

The Industrial Revolution and the adoption of a Gold Standard (1717 or 1718, under the supervision of Isaac Newton at the Royal Mint) reinforced the pound's credibility. The Bank of England adopted a gold standard of 4.25 pounds per ounce of gold, allowing noteholders to convert their notes into gold.

However, the First World War (1914-1918) put an end to this system. Within weeks, all the major warring powers suspended gold convertibility. The British Empire, and later the pound, emerged from the Second World War in a weakened state, giving way to the American dollar in the 20th century.

Below are some monetary weights from the period. The first is a weight for the sovereign. These weights were used with scales to verify the value of coins; the weight equivalent to the coin's value would be placed on the opposite side of the scale. The sovereign was a gold coin originally worth one pound.

Preceding the famous sovereign was the guinea, which operated on the same principle. The guinea was named for the region of Guinea from which its precious metals were sourced.