This collection of banknotes was originally assembled by my grandfather. He was interested in international finance and started it while traveling and getting banknotes from places he had visited. I inherited it when I was 12 or 13 and started adding to it with him. We were very close and part of my interest in finance certainly came from speaking to him.
Editor’s Note
In this ongoing Stanford Business series, we visit Stanford GSB professors’ offices and ask them to share the stories behind some of their favorite mementos.
The earliest specimens are from the 1920s and 1930s. A lot of the banknotes are from the ’60s, the ’70s, and the ’80s. One of the most beautiful is this one-pound banknote from the Bank of England with a young Queen Elizabeth. It’s such an elegant banknote. It’s really gorgeous.
I’ve used the collection as a teaching prop, mostly to make concrete what a currency is. All of us are familiar with banknotes. But when you look at how they reflect historical episodes and changing boundaries through the ages, they really give you a sense of why this is something that a government does.
Coins and hard currency have 3,000 years of history. Paper currency has a much more recent history as a viable instrument. For a long time, currency was backed by gold. The modern nation-state could be trusted in many dimensions, but monetary affairs wasn’t one of them.
Unbacked currency is a recent phenomenon. It came with trust in both the fiscal parts of the government and monetary policy that would keep prices relatively stable. When you get a dollar, you think the full faith of the U.S. government is going to honor that payment. But really, we mean a much deeper statement of the value of the currency: It’s a statement about inflation.
Inflation — to print more money — is a cheap way to finance the state. And governments, even reputable governments, have repeatedly resorted to this. I have a collection of banknotes from Zimbabwe when it had runaway inflation in the 2000s. You can see they kept adding zeros and zeros: 200 million, 500 million, a billion dollars. These illustrate how a currency can get completely debased over a short period.
The history of currency is the history of the rise and fall of geopolitical powers — from the Medici in the Renaissance to the Netherlands to Britain in the early part of the 20th century to the U.S. since World War II. One can take a lot of comfort in the idea that another currency is not going to rival the dollar in many of its uses anytime soon. If anything, from a share of usage perspective, the dollar is even more central than it has ever been. Yet the more the U.S. uses the current system to exert influence, the higher the incentives are for countries like China to try to build an alternative. — Told to Dave Gilson
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