The First Ever Exchange Rate

What we now began to have was the first ever exchange rate between currencies, one gold coin equalled X amount ‘Greek’ coins and Y amount of copper coins. Copper was accepted in trade but over the course of time when people were reminded of the precious value of gold and the abundance of cheap copper, the exchange rate between gold coins and Greek coins rose, copper coins too.

This led to merchants following suit with the exchange rate and adjusted the price of their goods and services to match. This cycle would repeat again and again: those in power continued to expand the empire and public works. This was all funded by the debasement of gold, adding to the total currency supply. Given the increase in currency going around merchants had to increase prices in order compensate for the loss in purchasing power of an ever ‘not-so-gold’ Greek coin.

When the rate between a sound money gold coin and the Greek currency coin, the people started to lose faith in the “Greek” coin and its value. They would sell off their unvaluable currencies into the sound money, thus increasing the value of the gold and destroying the value of the Greek currency. An important thing to note here is there is a transfer of wealth out from bad money and into good money. Those who had the foresight to position themselves on the right side of the transfer had the opportunity for vast financial gain.

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