How the Spanish and Portuguese “Discoveries” of the Americas Impacted the History of Money (#118 - 29 August 2022)



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The Future of Money with Henri Arslanian
How the Spanish and Portuguese “Discoveries” of the Americas Impacted the History of Money (#118 - 29 August 2022)
By Henri Arslanian • Issue #107 • View online
The age of exploration and the establishment of Spanish and Portuguese colonies across the Americas ushered in an early era of globalization, tightly connecting major economies and sources of wealth around the world as demand for gold, silver, and other commodities from Europe, the Middle East, and Asia hit new peaks. And this had a major impact on the history of money.
I analyse the impact of the “discovery” of the New World in this latest issue of your newsletter. 
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In order to understand the latest iteration of money and commerce, it is very much worthwhile to gaze all the way back through human history and focus on some of the primitive forms of money that laid the foundation for everything to come.
We’ve already touched upon the role that salthumansfurcattle, and cowrie have played in the development of money and trade, not to mention the Lydians, the Greeks, the Knights Templar, and Renaissance-era Italian bankers.
On our last trip back in time, we discussed the role of China in the development of paper banknotes during the Ming Dynasty. 
Whilst the Ming dynasty had retrenched inward, emerging power centers on the other side of the globe, particularly Portugal and Spain, were sailing the world in search of new routes and riches, not to mention a new route to Asia. Their goal was to find a course that bypassed the Muslim powers and the Italian city-states that enjoyed a lucrative trade monopoly with them. 
Portuguese explorer Vasco da Gama led the first European voyage to reach India by sea, reaching the Malabar coast in 1498.
In 1492, Christopher Columbus thought that he had discovered a route to Asia for Spain but inadvertently stumbled upon and “discovered” the Americas.
As historian Jack Weatherford explains, after Columbus’ arrival, it took the Spanish about 50 years to locate the major treasures, looting the great Aztec capital Tenochtitlan in 1521 and continuing their incursion into Central America before turning their attention to the Incas in the 1530s.
The Spanish melted most of the gold and silver they got their hands on so as to make into ingots to send back to Spain. 
Depiction of the Spanish conquest of Tenochtitlan
Depiction of the Spanish conquest of Tenochtitlan
In 1565, the Spanish, led by Captain Miguel Lopez de Legazpi, sailed from Mexico to cross the Pacific Ocean with the goal of establishing a colony in the Philippines (known to the Spanish from a previous journey by Ferdinand Magellan, who died there). They returned the same year to Mexico, following a journey of over four months at sea.
As Jame DiBiasio writes, this opened entirely new trade routes and made Asian goods more affordable (by cutting out the Muslim and Italian middlemen) for sale in Europe. Chinese silk and porcelain, Indian cotton, and Asian tea and spices were shipped to Mexico and then onward to Europe, first as raw materials and then as finished products.
The Spanish love of gold fuelled the conquest of the Americas, but it was silver that drove trade. The Chinese had the goods the Europeans loved but had no reciprocal interest in European goods.
However, China needed silver and loved the silver that the Spanish gave them in exchange for their wares. And the Spanish had lots of silver. 
Following his conquest of the Incas in 1541 (and taking much of their gold and sending it back to Spain), the explorer Pizarro discovered the Cerro Rico (in today’s Bolivia), a mountain made of silver, home to the world’s biggest deposit of silver ore.
A view of Cerro Rico from the Bolivian city of Potosi.
A view of Cerro Rico from the Bolivian city of Potosi.
But instead of sending the silver back to Spain, the Spanish quickly realized that China would pay double or even triple the rate of silver, eventually contributing to the decline of Ming Dynasty-era China.
From 1500 to 1800, the mines of the Americas provided 70% of the world’s output for gold and 85% of its silver, so it’s no surprise that wars between the European powers during that period focused on controlling wealth from the Americas and trade with Asia.
Spain would first struggle against Portugal, but then they would both struggle against England, France, and the Netherlands.
However, the Spanish and Portuguese had done something quite remarkable: they knit together several major economies around the globe.
Unfortunately, these economies were often linked for the wrong reasons.
In Africa, for example, this new wealth from the Americas created even more demand for slaves, with Africa becoming part of the triangular trade with America and Europe. African slaves were sent to the Caribbean and American silver and Caribbean sugar were sent to Europe before being used to buy more slaves to ship to America. 
Following the opening of the routes to Asia, this exchange would be expanded to include the spice trade with South Asia, the silk and porcelain trade with China, the opium trade with India, and the fur trade with Siberia and Canada.
Trade had become truly global, a force that nobody could stop, with money as the source of it all.
Unfortunately, both the Spanish and the Portuguese squandered wealth from the Americas; Spanish kings wasted it on foreign adventures and wars and Portuguese kings blew their riches on palaces and pageantry. 
Not surprisingly, this caused tremendous inflation with the number of goods produced unable to keep up with the volume of silver shipped from America.
For example, between 1500 and 1600, it’s estimated that prices in Spain rose by 400% (something they shared with the inflation-wracked Ming Dynasty that we touched on here).
But that’s another story for another time.
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My Latest Podcast Episode
How Scammers Are Tricking My Followers of Thousands of Dollars
Scammers have been impersonating me and creating fake Henri Arslanian accounts on Twitter and Instagram.
In this episode, a victim of a recent scam, David Ojakian, shares his experience and the tricks the scammers have been using. Eray Arda Akartuna, a crypto threat analyst at Elliptic also shares how we have been able to trace these accounts to two large crypto exchanges. 
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See you all next week!! 
Henri Arslanian
*Please note that this newsletter reflects Henri’s personal views and not those of any organisation he is involved with. This newsletter is for educational purposes only and none of its content should be construed as investment or financial advice of any kind. 
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Henri Arslanian

Future of Finance and Money - PwC Global Crypto Leader, Best Selling Author, Keynote Speaker, University Professor, Host of Crypto Capsule™ - Views are my own

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