In our second series in the currency catch up we’re going to look at some easier and more straightforward currencies to understand. These are the traditional resource currencies. Each of these countries has a handful of resources that dominate their balance of trade exports. As such, the value of these currencies is correlated with the price of these specific exports. It’s not a coincidence that these also happen to be what you could call the most successful of the remaining British colonies. We discussed the post-colonial world at length in part 1 of this series. Now let’s discuss the Colonial Remnants.
Table of Contents
The Resource Currencies
Australian News
Canadian News
New Zealand News
Conclusion
Internal References
1. The Resource Currencies
Traditional Economists all tend to agree on these 3 currencies in particular as being some of the most strongly correlated currencies to resources in the world. This is a direct function of how English colonists set up their colonies and the mindsets they took with them to the new world. Any of you who’ve ever been to England probably knows that for 9 months out of the year, it’s a cold, damp bit of rubble sticking out of the North Atlantic. Let’s dig a bit deeper though (literally), and talk about the rocks and soil beneath this country and the sort of mindsets these rocks foment in people living on top of them. Specifically, in how distinct and different this was compared to Spain, and France.
There are a few main types of geographies that can present themselves on this planet, we’re just going to focus on two. Granite… and Limestone. These stones have vastly different properties, and the one we’re mainly focusing on today is water retention. Limestone is porous and as such, water drains through it to Aquifers below, while Granite retains water far better. This sounds esoteric, but you can see it in the two pictures below.
And…
Granite retains water and tends to create landscapes with dense tall woods that feel like they can swallow you whole. Due to this retained water, granite is also far more likely to create fog than a limestone environment. While limestone does not retain much water for very long, so the vegetation grown is far more sparse, the trees don’t grow anywhere near as tall and frequently have much less dense foliage, and the ground often appears dry and dusty. If you think about most stories of hauntings or contemporary western folklore involving ghosts, without even knowing it, you’ll be thinking of granite bedrock and peaty soils. Even when you ask an AI to draw “a haunted coastline,” it inevitably draws granite bedrock and peaty soils.
Granite retains water and is typically covered in foliage, while limestone drains water and creates much more sparse foliage. This has a much more profound impact than just on the stories we tell children about a headless horseman riding around at night compared to talks about dust devils that will whisk them away if they wander alone.
The bedrock a society develops on impacts the political structure, the economic structure, and the family structure that forms there. In the tweet at the start of the section, you can see how agrarian societies built on bedrock that does not hold water well would have to be more communal; because you can’t simply strike out on your own, it’s not possible. While societies built on granite allow for rugged individualism and bootstrapping a new farm in the land you settled yourself. There is no point in trying to form a new settlement on limestone after someone had cornered the water source, well, or floodplains. You have to join their community if you want to survive.
But on granite, it’s all free real estate.
This informs the type of mindset people tend to hold depending on where and when they’re from. In the colonial era, much of the estates within Europe had been claimed. And in the karst topographies (limestone) of Europe, the water sources had all been cornered long ago. Colonists setting off from England were intending to claim land to settle for themselves. Colonists setting off from Spain intended to find resources and glory to bring back to Spain with the intention of rising higher within their existing commune. Granite settlers, vs. Limestone conquistadores.
You can see this in the exploits of the Spanish conquistadores and expeditions into the Americas. They showed up and ran around the continent maniacally looking for the fountain of youth, the seven cities of gold, and other mythological places. The Spanish conquistadores regularly failed to set up functioning colonies, and when they did it was often the result of them fathering children on a failed expedition. But even then, in the 16th century, Spain disincentivized the establishment of new colonies by decreeing that the established lands belonged to the crown and not the colonists themselves. This is limestone thinking at play. Not all of Spain’s conquistadors were failures. The Incan emperor Atahualpa, after his capture paid the Spaniards over 24 tons of Gold, and just short of 50 tons of silver for his ransom. The Spanish accepted and then killed him anyways. Most Spanish conquistadors were focused on making a name for themselves, spreading the religion to gain favor from the Pope, or earning quick riches, they had little interest in making long-standing colonies.
Consider then the types of colonies a country built on granite bedrock might form, compared to those from a limestone country. Much of the Iberian Peninsula is limestone, especially on the south and eastern sides of the peninsula. It makes sufficient sense that when the 2nd Caliphate invaded Spain, they managed to occupy all of the limestone, but failed to take over the northern province of Andalusia which is mostly granite. And basically right after the Andalusians reconquered Spain from the Muslim caliphate (literally, the same year)with the help of other European nations, the colonial era began.
The large difference between Spanish and British colonies is the following. Spanish colonies were never really created with the goal of establishing new homesteads and legacies on a foreign continent. The goal of Spanish colonization was to extract gold and silver from the Americas, stimulate the Spanish economy, and make Spain a more powerful country. Ironically, they even failed at this because the tons of Gold they managed to extract from the colonies and bring back to Spain created significant inflation (back then, significant inflation was 1.2% annually) and destroyed established wealth in Spain.
Spanish conquistadores went on expeditions with ships full of men. Any children they fathered were mixed with Native Women and were done with little intention of sticking around or raising them. While the English not only brought women but also created programs paying unmarried women to cross the Atlantic for free just to ensure that their colonies would propagate and become permanent British settlements. There is a reason that most Latin American people are some shade of brown, while British colonies retained their white European identities. The British brought women, while the Spanish pursued the women they found when they arrived and left a mix of children in their wake.
I presume you are all more familiar with British colonization, but here’s how we tie this together. Most British colonists had a granite mindset. They weren’t going with an intention of growing their own status back home (although some did), they were going with the intention of starting new cities. Their granite belief that water was readily accessible in any new homestead and was not a communal resource controlled by an authority is what fed their conviction that such a thing was possible. This British view of water rights is even visible in the western common law legal system today with Riparian Rights often enshrined into local law in ex-British colonies.
The British established colonies and stayed there. Once establishing a colony, it made sense to trade the rather abundant raw goods of the colony back to the European continent in exchange for the finished goods that came from European production.
Spanish and Portuguese colonies have all mostly severed themselves from their home continent because of the methods of their founding and the lack of intention of creating any lasting homesteads. British colonies were always intended as permanent homesteads and as such remained closely tied to their home country.
Looking through all of the British attempts at establishing colonies we see the same trend throughout the colonial period until the 1700’s when colonization was being done less by escaping protestants and more by the East India Trading Company. The end result was an interconnected network of colonies with British people at both ends, one side exporting raw goods, and one side exporting finished goods. Prior to WW2, the British pound was the main reserve currency of the world, this was primarily because pounds were interchangeable in any existing colony. Hell, Australia didn’t even have its own currency until 1910, New Zealand had to wait until 1957 to have its own currency.
These colonies had their economies shift so far towards a primary export or a small handful of primary exports that when they introduced their own currencies, those currencies quickly became largely tied to that economic sector. When the mining sector in Australia was doing well, large inflows of British pounds would enter the Australian mining sector and they turned their profits into the local currency. Same for New Zealand and its Agricultural sector, and the same for Canada’s Oil sector. The British pound is no longer the top dog, but the organization of these economies around raw goods exports has not changed. And alongside that, the local currencies remain tied to the local economy due to the heavy weighting of their Gross GDP to these sectors and their exports.
Outside of rare black swan events and larger macro-economic currency moves, these countries’ currencies almost explicitly track against the health of their main export sector. Australia primarily mines Iron, Coal, Gold, and Silver. Prices of those commodities, track against the Australian Dollar. Canada primarily mines oil. And New Zealand primarily exports food, fabric, and wool from its agricultural sector. So it makes sense to group them together as they typically will behave in similar manners and their central banks will all have similar concerns. Thus it should be no surprise that outside of the US being an outlier, these 3 countries have all had the most aggressive central banks in terms of rate hikes. Their economies aren’t centered around debt, thus hiking rates has less impact on the function of their economies. Now, let’s jump into what they’ve been up to during my absence.
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