Bullions to Banknotes: A History of Gold as Currency


Throughout history, gold has been synonymous with power, wealth, and prestige. It is no surprise that it became one of the first forms of currency. The ancient world valued it for its beauty, rarity, and utility. The history of its use as money is long and varied and reaches back all the way to the earliest annals of recorded history. In this article, we will explore a brief, truncated history of how gold came to be used in finance, and how its usage has changed into modernity. A more thorough history of gold as currency can be found by clicking here, but this article serves as a good starting point for anyone looking for a broad-stroke understanding of the topic.

In Antiquity

Gold has always been important to many societies, even before the advent of its use as currency. Ancient Egyptians used it in their art and engineering. While we imagine the pyramids looking like bricks stacked into their iconic shape that we know today, archaeological evidence shows that the pyramids looked much different in their glory days. Their faces were covered in shining white limestone and were capped in precious gold. Over the centuries, robbers have slowly stripped away these precious decorations to reveal the underlying brickwork; the pyramids we know are the skeletons of something far more beautiful. They also used it in jewelry, statues, and other pieces of fine art. In around 3100 BCE, Pharaoh Menes established the first comparative value of gold as currency by declaring that it was two and a half times more valuable than silver.

Its first use as official currency traces back to 600 BCE in Lydia, a nation that would much later become modern Turkey. King Alyattes established history’s first known royal mint, and that mint produced a coin of electrum. Electrum is a curious alloy, made of both gold and silver, and was made into coins whose faces denoted the coin’s value. While this is the first known example of using precious metals for currency, it was far from the only example of ancient civilizations adopting the model. Around the same time, Persian King Darius established his own royal mint, likely inspired by the Lydian model, which was the first known kingdom to use gold and silver coins separately, with a one to twenty ratios in value.


From there, the coinage system found its way into Europe through Ancient Greece. In the Hellenistic period, Greek coins were the first known to feature living people on their faces. Most of these figures were kings, but other important figures also found their way onto their faces. Like most of Greek culture, the Romans adopted this practice in their own empire. Precious metal coins became the foundation of Roman trade, and through conquest, spread to other parts of the world. The Roman standard became foundational to many otherwise unrelated economies in the ancient world, and established systems that outlasted the glorious empire.

The Medieval Period

The first instance of significant coinage unique to the Medieval period comes from the Normans, who minted silver coins in 1066 AD. These coins came in two varieties: pound sterling and penny sterling. The pound sterling coins were representative of a literal pound of silver, one of the first instances of representative currency in history. The Italian florin was one of the first widespread uses of gold coinage in the Middle Ages and became something of a standard for other nations to follow. England was behind the curve, relying on pounds sterling leftover from the Norman conquests and eventual integration into English society following the political aftermath of the Battle of Hastings. It wasn’t until the mid-1300s that English coins began to use gold in a widespread way with a coin called the noble, seen at https://en.wikipedia.org/wiki/Noble_(English_coin).

bullions to notes

By now, it and silver had become the standard for coin-based currency. However, there was another kind of currency that was beginning to find its place on the world stage: promissory notes, or paper money. While the history of paper money is not as well documented as coinage, it is known that the Han Dynasty in ancient China was one of the first nations to utilize it. Around the time of the English noble, the use of paper money as representative currency began to make its way to Europe through travelers like Marco Polo. Paper money as representative currency standing in for a set amount of precious metal quickly became the standard, which carried into the modern era.

Modern Currency

Representative currency carried over into the 17th century as a matter of necessity. National mints and powerful merchants had acquired large amounts of gold, which usually took the form of bars or bullions. Under King Charles I, the practice of storing gold with private agencies and banks became the norm. Paper receipts became representative of these stores, which became the first modern example of an official banknote. Paper money was far easier to carry, store, and exchange than precious metals, and thus the modern system of bank notes as representative currency was born.

The banknote system became the foundation of the young American economy after its divorce from England, and in 1792 – a mere three years after the American victory at Yorktown – the Coinage Act was adopted. This established the national American mint and the subsequent gold standard that would come to dominate the international economy. In this system, a dollar represented an ounce of gold and could be exchanged if the holder of the dollar so wished.

currency notes

In 1971 the gold standard was dropped in favor of a fiat currency model. While both gold and silver were still used in coins and could still be used as legal tender depending on the type of coin minted, divorcing paper currency from this standard made precious metals something of a hedge against economic forces like inflation. Today, precious metals are still popular with investors and collectors alike. Usually, it takes the form of either coins, which are backed by the issuing government as legal tender with a set face value, or bullions, which can be acquired through a reputable bullion dealer as well as through the national mint.

Divorcing from a stable standard has resulted in strange economic quirks, such as a negative value correlation between the fiat currency and the metals it used to represent. Generally, when the value of a fiat currency goes down, the value of precious metals goes up. This is due to the perceived instability of the dollar leading people to want to rely on a more stable form of money. Currently, market forces are causing the dollar’s value to trend downwards.

These forces are primarily threefold: the rising cost of everything, stagnation of wages for decades, and inflation leading to weakened international buying power. While a fiat model is more versatile, it is also less stable than a representative model. As you can see here, that instability is making precious metals more desirable as not only a hedge against these market forces but as a potential backup currency in case of a severe dip in value for the dollar – or a complete economic collapse. While the latter is not likely due to a myriad of factors, the rising value of precious metals in relation to a weakened fiat dollar still makes gold an attractive investment.

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