500 years world currency - icoinic
Andy Wong - Fundamental Analyst - Icoinic B.V.
Andy Wong

Throughout history, multiple transitions of empires occurred. Each of these empires had its own currency and way of life. This article will discuss the biggest modern empires (1300 AD) and its dominant trade currency. The empires examined are Portugal, Spain, the Netherlands, France, Britain, and the US. Furthermore, this article will discuss how they came to be and their downfalls.

What is a Reserve currency?

A modern definition of a reserve currency is that it is a currency held in significant quantities by central banks or other monetary institutions as part of their foreign exchange reserves. The currency is often used in international transactions, investments, and all aspects of the global economy. It is also referred to as hard currency or safe-haven currency. 

However, in older, medieval times, when institutions like (central) banks weren’t ubiquitous as they are today, a reserve currency is not determined by significant quantities of a certain currency held by banks, but rather by the country that dominated global commerce, which plays a lesser role today. Portugal, and Spain afterward, dominated the 15th and 16th centuries. The Netherlands dominated the 17th century, France the 18th and the first part of 19th, Britain the next part of the 19th and the first part of the 20th. And the United States dollar has been, for the biggest part, the reserve currency since then.

Portugal – Spain

The Portuguese empire originated at the beginning of the Age of Discovery, and the power and influence of the Kingdom of Portugal would eventually expand across the globe. Portuguese sailors began exploring the coast of Africa and the Atlantic archipelagos in 1418-19 using developments in navigation, cartography, and maritime technology. It allowed them to establish trading routes in Africa and India. Soon its ships were bringing into the European market highly valued gold, ivory, pepper, cotton, sugar, and slaves. The commercial network and colonial trade had a substantial positive impact on the Portuguese economic growth during the 1500-1800, it is estimated that roughly 20% of the per capita income is attributable to the trade networks. 

However, Portugal’s dominance didn’t last too long. After the Portuguese crisis of succession brought about by King Sebastian of Portugal’s death, Spain invaded Portugal (1580). In which King Philip II of Spain claimed and united the two kingdoms together and dubbed it the Iberian Union.

Before Spain lay claim to the Portuguese empire, it did not sit still either. After Columbus discovered the Americas for Spain in 1492, other parts of the world followed soon after; Most of Europe, North Africa, the Philippines, and some parts of Portugal. After a failed attempt to invade England with the infamous Spanish Armada, the Spanish never really recovered from its defeat. During the expansion of the Spanish empire, the Dutch revolted against Spain and started the 80-years war. Both empires have lasted for nearly a century. It seemed that conquering territories were easier than maintaining them.  The Portuguese and Spanish Real lasted for a combined period of around 200 years (100 each) .

Dutch Empire – Golden Ages

The aftermath of the 80-years war led to the foundation that made the success of the United East India Company (VOC) and Dutch West India Company possible. The Dutch gained important colonial possessions at the expense of Portugal. The VOC marked an important event in history. It was the first multinational, megacorporation funded by the government and the general public. The company issued bonds and stocks to fund its endeavors. Similar to Portugal and Spain, the Dutch established trading posts around the world and at one point half of Europe’s exports/imports were by Dutch merchants. This was possible because of the monopolies on the strategic trade routes held by the Dutch on spices and luxury goods. However, similar to the Portuguese and the Spanish, the Dutch Empire did not last forever. Britain passed the Navigation Act which excluded the Dutch from lucrative trading routes in the Caribbean and led to the first of four Anglo-Dutch wars that slowly eroded the Dutch naval power. Because of the Anglo-Dutch wars, spice trade ceased temporarily and caused a spike in spice prices. Which enticed other countries to start their own spice trading companies, namely French East India Company and the English East India Company. With more companies joining the spice trade and the costly Anglo-Dutch wars, the importance of the Dutch receded and gave way for the next empire, the French. Before it’s downfall the Dutch Guilder was considered a global currency for 80 years.

French Empire

The French achieved political dominance of Europe under the Sun King, Louis the 14th, after the ‘fall’ of the Dutch empire. France began to establish colonies in North America, the Caribbean, and India in the 17th century. Nearing the end of the 18th century, France’s involvement in the American Revolution and the extravagant spending of the monarchs caught up to the empire, the debt of France came to a staggering amount. So much so that after two decades of poor harvest, drought, cattle disease, and soaring prices of common goods (bread), much unrest kindled among the common folk, leading up to the French revolution. After a decade of civil war and unrest in France, Napoleon Bonaparte ended and became the hero of the revolution. At the height of the empire, France got control of most of Europe, parts of the Americas, Africa, and Asia. However, Napoleon’s empire didn’t last. Combined with the reign of the French monarchs and Napoleonic era French empire lasted for 95 years. Ultimately the Napoleonic era fell because of his arrogance to conquer the world, which included Russia, where he would lose a battle so severe that the country hardly recovered from. After the failed attempt to invade Russia, Europe’s political map suddenly shifted. Countries once inline with Napoleon now stood against him. France now found itself being attacked on all frontiers, and its people turned on Napoleon. The defeat at the Battle of Waterloo against Britain and the Prussians marked the end of France’s reign. While all this was happening the industrial revolution began in Great Britain, positioning Britain in line for the next empire. 

The French Franc was the global currency for nearly 100 years.

Britain’s Imperial century

The industrial revolution marks a major turning point in history. Every aspect of daily life was influenced in some way. Because of the higher productivity, average income and the population began to exhibit unprecedented growth. Adding the victory over Napoleon at Waterloo, Britain was left without any serious international rivals, other than Russia in Central Asia. 

Now unchallenged at sea, Britain introduced the Pax Britannica, a period where Britain dubbed itself the global policeman. Britain now controlled most of the key maritime trade routes. The imperial strength was underpinned by the new technologies; steamship and the telegraph. Both technologies allowed the control and maintenance of the empire. Britain’s imperial reign, not different from previous empires, lasted around 100 years. This time the empire was disrupted by the two devastating world wars. By the second world war, the British empire was virtually bankrupt. The next in line was, and stil is one of the victors of world war 2, the US. 

United States

The industrial revolution was not isolated to Great Britain. The United States also enjoyed the fruits of the new technologies. So much so that in 1916 the US output overtook that of the entire British empire. Signaling the decline of the previous empire and the start of the new. After the world wars, all the countries were left in economic ruin, with the exception of the United States. The US was the sole country with Atomic weapons which put them in a unique position to set the terms of the peace, which led to the creation of the United Nations. A lesser-known fact is that also shortly after the war a gathering of 730 delegates from all the 44 allied nations convened to discuss the regulation of the international monetary and financial order to prevent disastrous events like the great depression of 1930s to ever happen again. The conference came to be known as the Bretton Woods Conference and birthed the institutions we now know as the International Monetary Fund (IMF) and the world bank, formerly known as the International Bank for Reconstruction and Development (IBRD). It was at that point that the US dollar officially became the world’s first reserve currency.


At the Bretton Woods conference, multiple agreements were made; one of the most important was the creation of an adjustable foreign exchange market rate system; Exchange rates were pegged to gold, and governments could only alter exchange rates to correct a “fundamental disequilibrium”. Gold became the basis for the U.S. dollar and other currencies were pegged to the U.S. dollar’s value. The system only allowed currencies to deviate 1% from the fixed pegged exchange rate. 

With the creation of the United Nations, the rules of engagement changed. All the countries in the UN and NATO decided unanimously that war based on conquest is not allowed anymore. Thus changing the previous dynamic in how a currency became dominant. 

That is why the U.S. dollar got its reserve currency status differs from previous empires. Where previously currencies were in demand because of the ruling empire and became the dominant currency by default. Now a system is set in place to solidify the U.S. dollar strength by pegging different currencies to the value of the U.S. dollar. 

Gold Standard

After President Nixon devalued the U.S. dollar relative to gold, he declared a temporary suspension of the dollar’s convertibility to gold in 1971. By 1973, and multiple more devaluations, the Bretton Woods system had collapsed. Countries were free to decide on how to regulate their currencies. Either by linking it to a different currency, a basket of currencies, or even allow market forces to determine the value.

Now, there is not enough gold in the world to back the U.S. Dollar. Too many dollars have been printed. Currently, the U.S. Debt is around $21 trillion. While the gold market cap is at $9 trillion.  

However, for the U.S. to get off the gold standard was not necessarily a bad thing. The short break of the gold standard in 1933 allowed the government to get out of the great depression earlier than if they hadn’t. But the amount of printing happening currently is out of proportion and a byproduct of the overprinting is wealth inequality.

Wealth inequality

The Cantillon effect refers to the change in relative prices resulting from a change in the money supply. As can be seen currently from quantitative easing. The main takeaway from the effect is that because the injection of the capital follows a specific path. The first recipient to receive the new money supply is in the convenient position of being able to spend extra money before prices have increased, and the last to receive the money will have to spend it when prices already have been increased.

What’s next?

Every empire that rose to global dominance, either by trade or conquest, declined due to over-saturation or extraneous factors. The average cycle of a reserve currency lasted around 100 years, with a range between 80 – 110 years. The U.S. dollar is currently knocking at that door.  There is a case to be made for Digital currencies as the next reserve currency. There are a few criteria that a currency needs to meet for it to be functional. 

Medium of Exchange

People must be able to trade the currency for goods or services. Bitcoin fits the bill for smaller sized transactions. However, it is not ready to process a huge number of transactions like fiat systems can.

Store of Value

It needs to hold value over long periods of time. Users of the currency need to know that tomorrow the currency still has value. This statement is not unanimously accepted by the Bitcoin community. However, it is getting stronger every day. A recent survey by Fidelity concluded that a third of big institutions own crypto assets. 

Unit of Account

The currency needs to be a ruler by which other values are measured. For example, if a barber charges $50 for a haircut, the barber needs to be able to buy 10 hamburgers for $5 with the received $50. While it is an important facet of a currency, it is less important when applied to Bitcoin as it stands today. Currently, the merchant’s prices are still pegged to U.S dollars and shown as such. While the underlying units of Bitcoin are converted to USD.

Standard of deferred payment

Finally, a currency must serve as a standard of deferred payment. Meaning that if it is possible to make purchases today with a currency, it must also be acceptable to make purchases today that will be paid later in time.


It is not known for how long the U.S. dollar will keep its reserve currency status. A few comparisons can be made by looking at current times to the pre-French Revolution and the dethroning of the French Franc. The rising inequality, social unrest, and protests were precursors to the revolt that happened. Will it happen in modern days? Will the world again see a centralized institution issuing a currency that can change the monetary policies to their benefit? Or will the world make place for a decentralized solution, as can be seen in the field of cryptocurrencies?

Luc Correia Cabrito