The History of Gold as Money

Gold’s use as money is rooted in its consistent appearance throughout history as a display of wealth, power and status, owing to its aesthetic qualities, rarity, durability and malleability. In the Varna Necropolis in Bulgaria, once owned by the ancient Thracians, gold treasures have been found dating from as far back as the 5th millennium BC.

The Ancient World

Ancient Egypt also had an famous penchant for gold, plating pyramid capstones with gold and using clay blowpipes to heat smelting furnaces to process gold ore. Whilst gold wouldn’t be used as widespread money until 2,500 years later, Egypt did use gold bars in set weights for exchanges, although the most common method of exchange was mass commodity bartering. Around 3,100 BC, the Egyptian ruler Menes laid the foundation for incorporating gold into the Egyptian economy and decreed that “one part of gold is equal to two and one-half parts of silver in value”.

Gold was imperative to the Pharaohs of Egypt

Further east, there are records of assaying tools, known as touchstones, being used by the Indus Valley Civilisation near modern Pakistan. Having a greater control over the purity of metal paved the way for accurate evaluations of gold and was a key development in the transition from gold as a display of value, to easily divisible mediums of exchange to represent economic clout.

A royal mint

The first official declaration of gold as money came around 600 BC, where King Alyattes of Lydia, an ancient kingdom in modern-day Turkey, oversaw the first recorded mint. An alloy of silver and gold known as electrum was used to create coins, which were stamped with pictures that denoted denominations. Other civilisations soon followed suit, with Darius I of Persia introducing a 95.83% pure 8.4g gold coin, which was worth 20 silver coins. Much like the centralised monetary systems of today, Darius saw the minting of coin as a royal prerogative and gave the death penalty to Persian governors who tried to mint their own coins.

Coinage depicting Darius I

Gold made its way to Europe through the interplay of other competing civilisations, such as Ancient Greece, Carthage, and Rome. Roman society had de facto used coins as a medium of exchange for up to 100 years before the Republic officially introduced gold money in 300 BC, leading to the minting of the famous Aureus 250 years later. Gold coins continued to integrate into European culture, and after the fall of Rome the Byzantine Empire continued the tradition up until the middle ages.

The Middle Ages

In 1066 the Norman conquerors coined the term ‘pound’, meaning a pound of silver, which we still use today to describe Sterling; England then moved towards gold with the Noble in the 14th century. The continental Europeans, however, were ahead of the game with the Italian Florinbecoming one of the most dominant gold coins on the continent along with the German Augustalis introduced under Holy Roman Emperor Frederick II.

Frederick II, Holy Roman Emperor 1220-1250

The equally famous Venetian Ducat was created as a rival after the debasement of the Byzantine Hyperpyron, which the Venetians used to pay for imports from the East. It became one of the most widespread coins throughout Europe for 500 years, with many regional variants. In the 16th century, Spanish Conquistadors looted tonnes and tonnes of gold from the New World, resulting in economic stagnation and inflation in Europe due to increased amounts of money.

To modernity

By the 17th century, gold production had become more advanced, and the hoards of gold that merchants had acquired were stored by royal mints. After England’s King Charles I confiscated a large amount of gold as a forced loan, merchants and traders switched to storing their wealth with the private goldsmiths of London, who had previously dealt in storage, lending, and trading in the gold market. Originally, a receipt was issued to the depositor to identify ownership, but over time the goldsmiths started to re-lend and trade the receipts in exchange for lower fees. This was one of the first prototypes of modern banknotes and fractional reserve banking, as titles of ownership circulated over the asset itself out of convenience.

The UK came off the gold standard under Ramsay MacDonald in 1931

In the early modern era, the United States of America had used various amalgamations of both metal and paper currency options, but in 1792 the coinage act saw the birth of the United States mint and the US dollar. The ‘classic’ gold standard was adopted in 1879 and was further solidified in 1900, whilst the UK officially defined the pound sterling relative to gold in 1816. Major powers would periodically abandon gold to finance wars throughout the 20th century, and it was finally abandoned by the UK in 1931 and by the USA in 1971, having been slowly eroded by the Federal government since the Great Depression. Although many central banks still maintain substantial gold reserves, no current modern monetary system officially backs its currency by gold.