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Chapter 3. The History of Forex (and Why... > The Clash Between Governments and Ma...

The Clash Between Governments and Markets

As the use of currency spread, governments began taking steps to exert their control over it. This should hardly be surprising. Whoever controls currency holds power, and governments almost always seek power.

For thousands of years, Chinese emperors relied on a bureaucracy and a powerful army to control the use of money in their kingdom. As far back as 500 BC, tokens made from copper or brass were issued and circulated as cash. These tokens, which were strung together on strings, were backed up by gold and silver held by the government. Private citizens were forbidden to possess these metals on their own. No one could refuse the tokens, and the state maintained absolute control over the monetary supply and its value. This system is quite different from the metal coins issued by the Lydians, which had intrinsic value and were difficult for any state to keep track of once they had entered circulation.


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