Money and Its Forms: Potosi's Silver Impact

Generally accepted medium of exchange, a store of value that enables trading without barter; can be coins, notes, or digital records.

Money with intrinsic value, like gold or silver coins, or other items of agreed value.

Money without inherent value, such as coins exchangeable for gold or silver.

Money issued by a government, not backed by a commodity like gold, but by government decree.

Potosi silver influx significantly changed world economies, boosting Spanish power and fostering European capitalism.

Potosi, due to its immense silver production, is considered the birthplace of modern capitalism.

The influx of silver from the Americas altered global trade patterns, especially with China.

The influx of silver spurred other European powers to seek colonial opportunities abroad.

An institution that manages a country's monetary system, sets interest rates, and serves as the lender of last resort for other banks.

The first central bank, established in 1694, providing loans to the government and issuing banknotes.

A monetary system where the value of currency is directly linked to gold reserves, meaning a country can only issue a limited amount of currency based on its gold holdings.

The central bank of the United States, established in 1913 to manage the economy, control inflation, and ensure stability.

A financial panic triggered by bank runs and lack of liquidity, highlighted the need for a central bank to regulate the US banking system.

A powerful banker who intervened in the 1907 crisis, providing funds to banks and demonstrating the need for a central bank.

A role played by central banks, providing emergency loans to banks facing liquidity shortages, preventing systemic financial collapse.

The central bank of Canada, established in 1935 to manage the country's monetary system and ensure economic stability.

A monetary system where the value of currency is not backed by a commodity like gold but by government decree.

A commercial bank licensed by the government to accept deposits, lend money and provide financial services.

A banking system where larger, established banks operate a network of branches across various locations.

The first Canadian bank, established in 1817, playing a significant role in the country's economic development.

A major bank failure that led to stronger regulations for Canadian banks, highlighting the need for financial stability.

A Royal Commission that recommended reforms to the Canadian banking system, leading to a more open and competitive environment.

A situation where some members of a group, like the EU, participate in a common policy (like the euro) while others don't.

A post-WWII agreement that set fixed exchange rates between the US dollar and other Western currencies, with the dollar tied to gold.

The US dollar was tied to gold, and other currencies were tied to the dollar, creating a predictable exchange rate system.

A plan proposed in 1969 to create a European economic and monetary union, aiming to replace national currencies with a common European currency.

The Werner Plan required strong fiscal coordination, removal of capital controls, and fixed exchange rates between European currencies.

Two views on achieving monetary union: 'Economists' favored strict economic convergence first, while 'Monetarists' believed monetary integration would lead to convergence.

A temporary system in 1972 where European currencies fluctuated within a narrow band, an attempt to stabilise exchange rates after the collapse of Bretton Woods.

The 1973 oil crisis and uncoordinated responses from member states resulted in currency depreciation and the failure of the 'currency snake'.

A system created in 1978, using a virtual currency (ECU) and fixed but adjustable exchange rates, aiming to stabilise European currencies.

A virtual currency created in 1978 as part of the EMS, serving as a common unit of account but not issued as coins or banknotes.

A system within the EMS where currencies fluctuated within a band around a central rate, which could be adjusted periodically with agreement.

A report in 1989 outlining a three-stage plan for implementing the Economic and Monetary Union (EMU) in Europe.

Stage 1: economic policy coordination, monetary cooperation, free capital movement. Stage 2: transfer of monetary sovereignty, European Central Bank, narrower exchange rate bands. Stage 3: full handover of monetary power, fixed exchange rates, eventual replacement by the euro.

Germany was hesitant to relinquish control over its strong currency, fearing it would lose its economic power and stability.

The fall of the Berlin Wall in 1989 influenced Germany's role in the EU, positioning it as a key player in the push for monetary union.

Starting in 1990, this stage focused on preparations for the monetary union, involving discussions and negotiations.

Signed in 1992, the treaty established the European Union and aimed for a common monetary policy with the euro.

These requirements, set by the Maastricht Treaty, were meant to ensure economic stability among countries before adopting the euro.

The UK chose not to join the eurozone, negotiating to stay outside the monetary union.

The Danish rejection of the Maastricht Treaty in 1992 put the euro project in jeopardy.

Speculation on the Italian lira and British pound forced their currencies to leave the European Monetary System.

The euro was formally introduced as a virtual single currency in 1999, with exchange rates fixed.

Euro coins and banknotes began circulating on January 1, 2002, marking its physical presence.

When the euro was launched, it aimed to challenge the dollar's dominance as a global reserve currency.

The euro is used beyond the 19 countries that officially use it, with some countries linking their currencies to it.

Having a currency widely accepted internationally helps businesses avoid exchange rate fluctuations and governments borrow money cheaply.

While the euro is widely used, it holds about 20% of central bank reserves compared to the dollar's 60%, signifying less international prominence.

The euro aims to reduce the dollar's dominance in international finance, but faces challenges.

Trump's protectionist policies made the dollar less reliable, boosting the euro's potential.

Europe wants to be less reliant on the dollar for its economic and political decisions.

America uses the dollar's power to enforce its rules even on other countries.

The euro's credibility increased after effectively managing the pandemic crisis.

EU's bond program to support member states, making the euro a safer investment.

The NGEU scheme provides a risk-free way for investors to hold euro-denominated bonds.

The euro lacks certain features of a fully integrated financial union, like risk-sharing.

Using the euro alongside the dollar reduces the risk of relying solely on the dollar.

Digital currencies, like those issued by central banks, could change the world's monetary landscape.

China's yuan also aims for global prominence, but it's hampered by limitations.

A future with multiple currencies sharing reserve status may be possible.

The US's special advantage from the dollar's global dominance.

Disruptions caused by US monetary policy changes that impact global markets.

The dollar's dominance is reinforced by its widespread use in global trade and finance.

The currency's value is entirely determined by market forces (supply and demand) with no central bank intervention.

The central bank allows the currency to float daily, but intervenes occasionally to influence the exchange rate.

The exchange rate is fixed but adjusted gradually over time, often based on inflation or other economic indicators.

The central bank firmly fixes the currency's value to another currency or a basket of currencies.

A specific type of fixed exchange rate where the central bank holds sufficient foreign exchange reserves to fully back its currency.

When a currency increases in value compared to other currencies.

When a currency decreases in value compared to other currencies.

When a central bank buys or sells its currency in the foreign exchange market to influence the exchange rate.

A specific exchange rate level that a central bank aims to achieve or maintain.

Government restrictions on the movement (inflows and outflows) of money across international borders.

A central bank's holdings of foreign currencies or other assets used for intervention in FX markets.

Currency transactions happening outside the officially fixed exchange rate, often when the official rate doesn't reflect market realities.

A deliberate official decrease in the value of a currency against other currencies.

A deliberate official increase in the value of a currency against other currencies.

Informal markets where currencies are traded at rates different from the official rate.

A currency's value is fixed to another currency at a predetermined rate, maintained by the central bank's intervention in the foreign exchange market.

A currency's value is fixed to another currency, like the Hong Kong dollar to the US dollar.

The central bank issues domestic currency only when there are corresponding foreign currency reserves, ensuring full convertibility and limiting its ability to print money.

The influence the US dollar holds in the global economy, impacting exchange rates, financial sanctions, and global trade.

Restrictions imposed by one country on another's financial institutions and transactions, often used as a political tool.

A system where other currencies, like the Chinese renminbi, become more prominent in international trade and finance.

A market in Hong Kong where issuers from around the world issue offshore renminbi debt, offering an alternative to the US dollar market.

The US central bank raising interest rates to control inflation, which can affect global exchange rates and financial markets.

Differences between the actual exchange rate and the rate predicted by Purchasing Power Parity (PPP), where identical goods should cost the same in different countries after exchange rate adjustment.

A simple measure of currency valuation, comparing the price of a Big Mac in different countries to estimate if a currency is overvalued or undervalued.

An adjusted version of the Big Mac Index that considers a country's GDP per capita, providing a more accurate estimate of currency valuation.

While PPP is not a reliable short-term predictor, it is believed to play a role in anchoring exchange rates over the long term.

The London Stock Exchange (LSE) is selling MTS, a subsidiary providing clearing services, with Euronext being the most likely buyer.

A clearing house acts as a central counterparty in financial transactions, ensuring the completion of trades and reducing risk for participants.

Euronext's partnership with the Italian government, with CDP owning 8% of Borsa, gives it a strong advantage in the MTS acquisition.

This law allows the Italian government to intervene in deals concerning strategically important sectors, like financial infrastructure.

Populist political movements in Italy are pushing for Borsa, the Italian stock exchange, to remain under Italian control.

Consob, the Italian financial regulator, is headed by a Eurosceptic figure, suggesting potential resistance to foreign acquisitions.

The US dollar is the primary currency for international trade and finance, due to its abundant liquidity, low cost, and universal acceptance.

The global dominance of the US dollar is partly due to the US's powerful military, ensuring its debt's status in the world economy.

A sudden increase in US interest rates, which strengthens the dollar, can have a significant impact on global credit markets and commercial transactions.

A stronger dollar makes US exports less competitive, increases debt service costs for those borrowing in dollars, and can harm global trade.

The dollar's dominance means that a rise in its value has a disproportionate effect on global markets compared to the fall of other currencies.

A rising dollar can cause inflation in countries with currencies that fall in value, forcing them to raise interest rates to match.

Central banks around the world are simultaneously raising interest rates due to the US's rate increases and inflation pressures, causing a global tightening of credit conditions.

Tightening credit conditions in the dollar-based system can cut off weaker economies from essential imports and access to credit, potentially leading to crises.

The current economic environment, with rising interest rates and a strong dollar, poses risks to low-income countries already burdened with debt, potentially leading to a debt crisis.

Many low-income countries have borrowed at variable interest rates, which are good during low rates but become dangerous when rates rise, increasing their debt burden.

Despite the potential for a debt crisis, the dollar-based system has evolved to manage these risks. Strong economies are better protected, while weakened economies struggle.

Countries heavily reliant on the dollar, especially those with dollar-pegged currencies or excessive dollar borrowing, are vulnerable to its fluctuations.

Since the 1990s, various tools have been developed to manage the risks associated with the dollar-based system, reducing dependency on the dollar and managing risks.

While the dollar system has become more resilient, it remains fragile due to its reliance on a single currency and the interconnected nature of global finance.

Countries and businesses are increasingly employing strategies to manage their exposure to the dollar's fluctuations, including hedging, diversifying, and using local currencies.

When a country borrows money in a currency other than its own, it risks devaluation if the foreign currency strengthens. Foreign investors might sell their stakes, driving down the value of the local currency.

A tongue-in-cheek way to measure the buying power of currencies by comparing the price of a Big Mac in different countries. It's based on the concept of purchasing power parity (PPP).

The theory that exchange rates between two currencies should be adjusted to reflect the actual price of goods and services in each country.

Investors taking advantage of currency fluctuations by buying and selling currencies to profit from price differences. Sometimes, speculation can drive currency values up or down.

Public authorities like central banks provide support to the global financial system, reducing the risk of major disruptions, often subtly and behind the scenes.

A system where the US dollar benefits from both strong economic growth and situations where the US economy falters. This creates an uneven playing field for other countries.

The dominance of investment banks, fund managers, and their borrowers in shaping and maintaining the US dollar-based global financial system.

Arrangements between the US Federal Reserve and major central banks around the world, where they can borrow dollars from each other in emergencies.

When the Federal Reserve raises interest rates to control inflation, it can impact the global economy, even beyond the US.

A situation where the US economy slows down slightly to control inflation, but avoids a recession.

The Hong Kong dollar is pegged to the US dollar, meaning its value fluctuates in a tight range relative to the US currency.

A currency that, according to PPP, is priced lower than it should be, reflecting a potential for appreciation.

Currency speculation doesn't always guarantee profit. Investing in undervalued currencies may not always lead to gains, as exchange rates can be unpredictable.

When currencies are slightly undervalued or overvalued, they typically revert back to their fair value over time, but this process can take a few years.