Gold and Silver
Coins before modern banking
When coins were made out of gold or silver, there were literally worth their weight in gold (or silver). The problem though was that (dishonest) people could chip bits off the coins and melt the bits into more coins, or debase the coin by melting it, mixing the precious metal with less-precious metals to make many more lower quality 'gold' coins.
Money supply before modern banking
For a country to become more wealthy/powerful it needed to have more gold and silver. More gold and silver can be made into more coins to buy more things with.
Gold and silver can be obtained in two ways;
- mine it from the land (whether the land belongs to you or not).
- take it from another country or person.
- say that only your coins can legally be used in your country and change the rate at which you will exchange your coins with another country when doing business.
As all the natural gold and silver deposits dried up
Although the Britannia gold bullion coins were issued as recently as 1987, these never entered common circulation. The last gold coins in common use, £1 gold sovereigns, disappeared during the First World War (1914-18) and Britain abandoned the direct tie of her currency to gold in 1931. The words on Bank of England notes 'I promise to pay the Bearer on demand the sum of £**' are now quite meaningless as the paper note itself has become the ultimate means of redemption. It is legal tender, and only it is (together with coins for small sums). The last indirect connection to gold ended in 1971, when the US treasury bond was no longer redeemable in gold.