Vellon inflation in Spain

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The vellon inflation run its course in 17th century Spain. In the country with the largest silver mines in the world have gold and silver vanished from circulation.[1]

The inflation

After the unification of Spain, king Charles the 1st (emperor Charles V) reigned over all the lands of the Habsburg line, Germany, Netherlands and large parts of Italy. The discovery of the New World made Spain a colonial empire upon which the sun would never set. Though it enjoyed growth from trade, it kept little of the treasures of silver and gold, that streamed through it into Europe.

Though he was the most powerful ruler in Europe, Charles the Fifth had huge problems with his finances. The constant wars meant huge expenses, the incomes from his lands were varied and insufficient. The taxes, tariffs and various donatives were much larger than the incomes from silver and gold imports, still it was not enough. The interest rates were 10-20% high (at times up to 30%), incomes had to be often pawned or sold off. It is estimated, that at his abdication had his government a debt of 20 Million ducats, the interest ate most of the incomes.

When Philip II took over, he was advised to renounce the debts of his father, but chose not to as it would mean effective bankruptcy. The introduction of new special tariffs, selling of monopolies on salt and noble titles and offices brought some temporary relief. He also confiscated several shipments of gold and silver, which caused many bankruptcies. By 1564 was the debt 23 Million ducats, in 1574 already 35 Millions. Since the interest consumed all incomes, in 1575 were all payments stopped and the public debt should be revised by a commission, the interest lowered. Since so many of the great trading companies of all across Europe were lenders to the Spanish Crown, many were pushed to the brink of bankruptcy and some beyond. The debts had to be recognized in full, but at least the interest was lowered.

The situation deteriorated again with the war in Netherlands, which turned from a major income source into a major financial burden. The hostilities against England and the sinking of the Armada did not help either. More taxes were raised, carried mainly by Castile; and Portugal came under Philip's control. But at the time of his death in 1598 was the debt estimated at one hundred million ducats, Spain's economy seriously damaged by his measures.

Until this moment has the Crown resisted meddling with its currency. The son, Philip III left much of the reign to the Duke of Lerma. To his credit, he achieved peace with France, Netherlands and even England. But in turn, the royal court became incredibly wasteful (the Duke and his family became wealthy as well).

To have any income at all, in 1599 was the vellon (based upon the accounting unit maravedí) coined from pure copper, devoid of any silver content. The Cortes protested to no avail. In 1602 was the coin reduced to a half weight and the copper price was fixed to prevent its rise. The huge profits were undercut by foreigners, who produced their own coins and smuggled them into Spain by the shipholds - buying up the fine gold and silver coins for cheap. The government soon received its taxes in the debased copper coins. When a new tax was sought in 1608, the Cortes allowed it, despite threats and attempted bribes, only in exchange for a promise to not make any more vellon coins with or without silver for the next twenty years.

The successor, Philip IV did not feel bound to the promises of his father. He has cut the expenses of the court to a half, but immediately started inflating. The massive increase in currency was first blamed on smugglers, threatened with a death sentence. But the situation became unbearable and the vellons were in 1628 devaluated by a half, the king promised to never again change the rate, not should his successors. But in 1636 were all coins withdrawn and by re-stamping their nominal value tripled. Attempts to reform the system were halted by the war with France and an uprising in Catalonia. In 1641 was the coin value multiplied again. The consequent growth of prices created a great unrest, and the king reduced the coin values, promising to not raise them. It took less than a year to break the promise. Until the peace with France in 1659, several such inflations and deflations followed.

In the period of inflation, most payments were done in vellons. In the country with the largest silver mines in the world have gold and silver vanished from circulation. Larger payments required separate rooms to store the money, and officials were required just to count, sort and weigh it. Perhaps the most surprising is the loyalty, which the Spanish felt to the Crown, despite serious losses to all the financial manipulations. Finally, in 1660 was minted a new silver coin, the moneda, and the inflation ended.[1]


  1. 1.0 1.1 Richard Gaettens. Geschichte der Inflationen Von Altertum bis zum Gegenwart (German: History of Inflations from Old Ages to the Present), Die Velloninflation in Kastilien (The Vellon inflation in Castile) p. 52-73. ISBN: ISBN 3-87045-211-0. Referenced 2010-01-30.