Naturally, the architects of a united Europe after the Second World War envisioned a common currency, but the practical work on this process began on a specific date — December 1969, at the European Summit in The Hague. What else is significant about this date? To answer that, we need a brief digression.
For several preceding centuries, the “civilized world” operated under a single currency: precious metals, gold and silver. The monetary unit was simply the weight of the precious metal. The inscriptions on “national” banknotes — dollars, pounds, francs — indicated merely the weight of metal that these pieces of paper could be exchanged for.
Despite numerous shortcomings, primarily stemming from governments’ ability to interfere with its operation, this system became the foundation for economic growth and progress, especially in the 19th and 20th centuries. However, the metallic standard was deeply unprofitable for states, as it severely constrained their desire to bring light and joy to their people, not to mention their ability to fight for impressive statistics. In general, the entire 20th century was spent by states liberating “their” currencies from gold — and that is a separate and fascinating story.
Our story begins with the crisis of the last international monetary system, known as the Bretton Woods system, which was somehow tied to gold. To vastly simplify: only the US dollar was exchangeable for gold, at a fixed price of $35 per ounce, and only in bars and only in settlements between the central banks of participating countries. Other currencies were exchanged for the dollar at fixed rates.
The existence of this system did nothing to limit the appetites of the Fed and the American state. Throughout the period following the Bretton Woods agreement, they cheerfully flooded the world with American dollars. Foreign central banks dutifully exchanged these dollars for gold, steadily depleting American gold reserves — which had been the largest in the world immediately after the Second World War — and then began to melt away rapidly. What’s more, it was necessary to maintain the price of $35 per ounce of gold; the entire system rested on this price. Therefore, the Americans had to intervene in foreign exchange trading gold, on which private individuals — Americans were prohibited from owning gold — from other states exchanged the dollars they had acquired for gold.