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Thu, 18 Feb 2010

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.

Posted at 18:05 on Thu, 18 Feb 2010     1 comments     permanent link


Rahul Deodhar wrote on Fri, 19 Feb 2010 08:21

Re: Currency values since the gold standard

I think you are on to something bigger. Kindly explain in greater detail.