In ancient times, Athens’ position was built not only on silver mines but also on its possession of a large fleet. The strong Greek currency was based on silver and ensured a wide range of cross-border transactions and the stability of the community.
Rome’s soldiers were so successful because they were paid in gold. The gold solidus was introduced by Constantine in the 4th century BC and remained legal tender until the 5th century AD.
Whilst the solidus declined gradually alongside the collapse of the Roman Empire, the end of the gold dinar was abrupt. The capital of the Abbasid Caliphate – Baghdad – the centre of the Islamic Golden Age, science and global finance, was besieged and completely destroyed by the Mongol army under the command of Hulagu Khan. During the conquest of the city, Caliph Al-Mustaim was killed, and the legendary centralised gold reserves and treasures of the Abbasids were plundered. Thus ended an era in which the gold dinar served as one of the most important global reserve currencies in the trading world of that time.
During the heyday of the Italian city-states, the gold florin became the most important currency of Renaissance Europe. Currencies from the Apennine Peninsula spread through the expansion of trade, but their dominance was interrupted by the rise of the Spanish and Dutch empires. With the conquest of the New World, gold took on a key role, and the position of global market leaders was taken over by the Dutch guilder and the British pound. The Boer War forced Britain to borrow money in New York, which initiated the process of transferring political and economic power from London to Washington. The US made excellent use of these circumstances – the Federal Reserve was established and a massive issuance of dollars was launched. Ultimately, the United States emerged from the chaos of the Second World War as the global hegemon, and the dollar became the dominant currency. This came about because the US established the dollar as the currency for settling transactions in the commodities trade and forced various countries (through the IMF, the World Bank and others) to take out loans in dollars.
Nowadays, the US is building its position as a hegemon – just as Athens did – on the strength of its fleet; however, soldiers are not paid their wages in gold solidi, but in dollars, whose purchasing power, like that of all fiat currencies, is steadily declining. The European Union created the euro, which has proved a failure in countries such as Greece and has lowered the standard of living and purchasing power of citizens, particularly in smaller countries that adopted it (Slovakia, Latvia).
The fact that the era of the dollar is slowly coming to an end, just like the era of the solidus, is demonstrated by the following:
[1] The economic situation in the US is deteriorating, and living standards – particularly among the lower and middle classes – are falling;
[2] The US is losing wars (recently in Afghanistan, now in Iran and the proxy war in Ukraine);
[3] Cryptocurrencies and initiatives by the BRICS are undermining the dollar’s position;
[4] The US national debt has reached unprecedented levels.
The history of the US dollar may well resemble that of its predecessors – former global leaders such as the Roman solidus or the Florentine florin. These currencies dominated for at least 100 years, but ultimately always had to acknowledge the superiority of the successor that eventually appeared on the horizon. The status of an international currency is not guaranteed forever. This status is similar to that of a natural resource. If managed well, it provides a source of enrichment for present and future generations. If mismanaged, it becomes a curse.
Is the time now coming for the yuan, Bitcoin, or perhaps the central banks’ digital currencies? Or do we need Mongols at Fort Knox? The dollar will certainly not repeat the solidus’s 800-year run of success.
