EARLY MODERN CURRENCY – PART 1

Early modern currency was fiendishly complicated by modern standards.

Today, there are, of course, multiple currencies—the American/Canadian/Australian/New Zealand dollar, the British pound, the European euro, the Russian ruble, the Japanese yen, the Chinese yuan, the Indian rupee, etc.—and keeping track of them all and their various exchange rates can seem a bit complicated. But modern currencies (with only a couple of exceptions) all have one thing in common: they are decimal currencies. They are also traded on an open, world currency market where rates are determined by international standards.

None of this was true for early modern currency.

First, it wasn’t decimal.

When most people think of a non-decimal currency, they think of the old English pound, back when it was the eccentric pounds/shillings/pence system: 1 pound = 20 shillings = 240 pence. But the pound was not the only European currency to have such eccentricity. French coinage used to be denominated in livres (1 livre = 20 sou = 240 deniers), and Italian coinage in lire (1 lire = 20 = soldi = 240 denari).

This seemingly arbitrary denomination was not, in fact, arbitrary at all. European currencies derived in varying degrees from the monetary system established during Charlemagne the Great’s reign (at the end of the eighth and beginning of the ninth centuries). This system, in turn, was derived from the currency used in the Eastern Roman Empire, centered at Byzantium.

Carolingian currency consisted of livres (Latin: libra), sous (Latin: solida), and deniers (Latin: denarius). The Carolingian livre (French for “pound”) literally referred to a pound weight, but it was a Troy pound, which contained 12 Troy ounces.

One Troy ounce contained 480 grains.

A Carolingian silver denier—commonly known as the silver penny—weighed 24 grains.

So 240 deniers could be struck from a Troy pound of silver. (One Troy pound equaled 5,760 grains (12 480-grain ounces); since 5,760 grains divided by 24 grains equals 240, one Troy pound contained 240 deniers.)

The Carolingian livre/sou/denier system was notional, however. It specified relative values rather than coins. The only Carolingian coins actually struck were silver deniers—silver pennies.

This Carolingian denomination—240 deniers/pennies equaling one pound—is the origin of the eccentric European currencies that have now all been converted to decimal systems.

Back in the sixteenth and seventeenth centuries, however, the Carolingian system had morphed into a myriad of local currencies as individual countries/kingdoms—sometimes individual districts or even towns—minted a bewildering array of coins.

To compensate for this monetary confusion, a theoretical system, usually termed ‘money of account,’ was employed for accounting purposes. This system used a set number of nominal coins, of a set value, to record transactions. Typically, the system used a silver coin as the standard—such as, for example, the French livre de gros tournois—and then valued the particular coinage used in the transaction relative to the livre. Sometimes a gold coin, like the Venetian ducat, was used as the standard.

To complicate matters, the standard coin used in this money of account system to set exchange values might or might not exist as an actual coin in circulation—the livre de gros tournois was never a circulating coin; the Venetian ducat was.

Early modern coinage was further complicated by the fact that, like the Carolingian currency it was based on, the coins had an intrinsic value: the metal content of a particular coin determined its worth—at least in theory.

Matters were complicated by several other factors, though. Currencies were bimetallic—consisting of both gold and silver coins—and there was a set ratio of value between the two metals. This ratio was not stable, however. Among other things, the huge influx of Spanish New World silver in the sixteenth century had disrupted the system.

To compensate, authorities revalued their currencies to reset the gold/silver ratio. But since this revaluation was a piecemeal affair done on a country-by-country, area-by-area basis, it had the effect of setting off currency speculation. Speculators might, for example, buy silver coins in England, where the silver/gold ratio value was, say, 13:1 (that is, 13 units of silver to 1 unit of gold), and then use those same silver coins to buy gold at a profit in the Netherlands, where the silver/gold ratio might be 12:1. They could then take those gold coins back to England and buy more silver at a profit… and so on.

The result of all this on an international scale was a mess, with constant revaluations, re‑revaluations, and chronic shortages of coins.

Despite all this confusion, there was still what amounted to an internationally recognized currency exchange rate system, and certain coins gained wide enough recognition to become standard units that could be used for transactions between countries.

The standard international gold coin derived from the Venetian ducat (and Florentine florin). In Northern Europe, this gold coin came to be known by its Dutch name, the gulden (or guilder)—the financial center of Europe having shifted by this time from Venice to Amsterdam. The standard international silver coin was the thaler, which (theoretically) contained a weight of silver equal in value to two gold gulden/ducats. The Spanish silver peso, known as the peso de ocho (piece of eight), equaled the same amount. So did the Dutch silver leeuwendaalder (lion’s dollar), as did 4 English shillings.

The complexity of Early Modern European currencies made international financial transactions complicated. This was especially true when it came to ransoms paid to Barbary corsairs to free their captives.

For a look at how the financial details of such ransoms worked, see the next post in this series: Early Modern Currency – Part 2.

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For those who may be interested…

The Spanish peso de ocho (the piece of eight—so named because it was worth 8 silver reales, the real being a small-denomination silver coin) was the standard Spanish coin of the age. Because Spain was such a dominant force at the time, the peso de ocho also became in many places the standard international coin (rather like the American dollar has become the standard currency in many parts of the world today). This is why sixteenth, seventeenth, and eighteenth century Caribbean pirates were so hungry for pieces of eight.

The other standard international European coin was the thaler (pronounced tal-er, to rhyme pal-er). The thaler got its name from the place where it was first minted, Joachimsthal, in Bohemia, in what is now the Czech Republic (because there was a silver mine there). In German, “thal” (pronounced tal, to rhyme with pal) means “valley.” The regular German genitive (i.e., possessive) suffix is “er,” so thaler means “of the thal” (we have a remnant version of this German genitive suffix in English in such terms as “New Yorker,” somebody “of New York”).

The word thaler came to be pronounce “dollar” in English. A thaler was equal in value to a Spanish peso de ocho, so the peso de ocho became known in the English speaking world as the Spanish dollar. English coins were in short supply in the New World, and the Spanish dollar was widely used, so widely used that the term was adopted to designate the unit of currency for the fledgling United States.