Prof. Jayanth R. Varma’s Financial Markets Blog

A blog on financial markets and their regulation

Currency values since the gold standard

I did some analysis of how the value of various currencies have
behaved in the hundred years or so since the last decade of the gold
standard. I found the results interesting and I am posting them
here.

I focus on the twelve countries which are either part of the G7
today, or were one of the eight great powers
before World War I, or figure in the top seven traded currencies
according to the BIS survey of 2007. I have started with the gold
parities during the last few years of the gold standard from
1900-1914. All the currencies of interest were on the gold standard by
1900 and did not change their parities during this period.

I then convert the gold parities into exchange rates against the US
dollar. Next, I take into account all the redenominations in which
some hyper-inflating currencies had a few zeroes lopped off during the
last hundred years. Finally, I take into account the re-denomination of
several European currencies into the euro. This leads to the
re-denominated gold standard value in USD. I would welcome corrections
of any errors that you may find in my data and my computations.

The re-denominated gold standard value tells us what the exchange
rate of the modern currency should be to preserve the gold standard
value of the old currency through all the redenominations. I compare
this with the actual value of the modern currency and compute an
annual percentage change in currency value (taking the time period
from the gold standard days as a nice round hundred years).

Only two currencies have appreciated against the US dollar over
this long period – the Swiss Franc and the Dutch guilder –
while the Canadian dollar has held its own. Switzerland has enjoyed a
great deal of geo-political luck during this period, but the
performance of the Dutch guilder is truly amazing. The euro is
commonly regarded as a successor currency of the Deutsch Mark, but if
we go back beyond World War II, it makes greater sense to regard it as
the successor of the Dutch guilder.

The data has been split into two tables to fit the width of the
page better. Countries have been listed in the order of their current
GDP.

Country US Japan Germany France UK Italy
Gold Standard Currency dollar yen mark franc pound lira
Grams of gold 1.505 0.752 0.358 0.290 7.322 0.290
Gold standard value in USD 1.000 0.500 0.238 0.193 4.866 0.193
Re-denomination 1.00E+12 x 1.95583 100 x 6.55957 1936.27
Current Currency dollar yen euro euro pound euro
Re-denominated gold standard value in USD 1.0000 0.5000 4.66E+11 126.5684 4.8665 373.6078
Current value in USD(mid Feb 2010) 1.00 0.01 1.36 1.36 1.56 1.36
Annual change 0.00% -3.74% -23.33% -4.43% -1.13% -5.46%

Country Canada Russia Switzerland Australia Netherlands Austria
Gold Standard Currency dollar ruble franc pound guilder krone
Grams of gold 1.505 0.774 0.290 7.322 0.605 0.305
Gold standard value in USD 1.000 0.515 0.193 4.866 0.402 0.203
Re-denomination 5.00E+15 0.5 2.20371 1.00E+4 x 13.7603
Current Currency dollar ruble franc dollar euro euro
Re-denominated gold standard value in USD 1.0000 2.57E+15 0.1930 2.4332 0.8858 2.79E+04
Current value in USD(mid Feb 2010) 0.96 0.03 0.93 0.90 1.36 1.36
Annual change -0.04% -32.22% 1.58% -0.99% 0.43% -9.45%

Not surprisingly, gold itself has done better than any currency,
appreciating 4% annually against the US dollar and 2.4% annually
against even the Swiss franc. I do not know what the average Swiss
interest rate has been during this period; it is conceivable that it
compensates for most or even all this depreciation.

What about the Indian rupee? From its gold standard parity of 32 US
cents (Rs 15 to the British pound), it has fallen to about 2 US cents
– an annual depreciation of 2.67%. This is bad, but better than
the Japanese yen and the French franc. The rupee entered the gold
standard at a low value reflecting the depreciation of the old silver
rupee during the global demonetization of silver in the late
nineteenth century. The depreciation of the rupee began only in
1967. The last fifty years would be a lot worse than the last hundred
years.

Advertisements

6 responses to “Currency values since the gold standard

  1. Yamini Kaushal March 24, 2010 at 7:20 am

    The gold standard money are the ones as defined by the IMF and world central banks of a certain period, time and are exceptionally of high denominations.Your theory and research resembles a bit but not as per IMF’s scope.

  2. Rashid Khalid June 15, 2010 at 10:26 pm

    Generally,worldwide all the banks and people have adopted the gold standard currencies (also known as yunani money) as specified in http://www.articlebase.com/gold standard currencies by the IMF and world central banks as those money notes were and are protected by standard wt. of pure gold by govt.’s and banks, gold being deposited into banks by those govt.’s as security and circulation of those currencies.

  3. Rashid Khalid June 15, 2010 at 10:28 pm

    Generally,worldwide all the banks and people have adopted the gold standard currencies (also known as yunani money) as specified in http://www.articlebase.com/gold standard currencies by the IMF and world central banks as those money notes were and are protected by standard wt. of pure gold by govt.’s and banks, gold being deposited into banks by those govt.’s as security and circulation of those currencies or banknotes.

  4. compare currency rates September 28, 2010 at 6:39 pm

    It’s a nice informative blog for online compare currency rates services. It is helpful for money transfer and currency exchange.

  5. gold retirement May 22, 2013 at 7:21 am

    Hi there are using WordPress for your blog platform?
    I’m new to the blog world but I’m trying to get started and
    create my own. Do you need any coding knowledge to make your own blog?

    Any help would be greatly appreciated!

  6. microsoft points generator no download August 17, 2013 at 6:19 am

    Generally I do not read article on blogs, however I would like to say that this write-up very pressured me
    to check out and do it! Your writing style has been surprised
    me. Thank you, quite nice post.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: