There is some talk on the fringes of the media about a "Bretton Woods 2" being developed. If it sees the light of day, this system would be similar to the financial treaty established at the end of World War II. Put simply, the original Bretton Woods made the U.S. Dollar backed by Treasury Bills and gold (initially fixed at $35 an ounce), while the member nations pegged their currencies to the U.S. Dollar. This system was effectively gutted by President Nixon, when he effectively took the Dollar off the gold standard.
The United States' gold standard, loosely, was a monetary program where a bank issues paper notes (the certificate notes of yore). These certificates were backed by a preset quantity of physical gold, held by the bank. Due to other banking regulations (which we will discuss in a later post) the banks were not required to hold enough gold to cover all of their issued certificates, merely a certain percentage of them.
One of the reasons the United States went off the gold standard, and indeed one of the primary criticisms of gold-as-money, is that there is not enough gold physically in the world to have a smoothly-circulating monetary system. This is indeed true, both now and in the past. Historically, gold was not a form of money which circulated. Rather, it was more of a store of value, or for exceptionally large purchases (say, an apartment building or two). Gold has always been too scarce to serve as a day-to-day form of money.
To remedy the problem, one can turn to 'lesser' metals, such as copper, nickel, and silver. These metals are more commonly discovered. Discussion of these other metals as money will be for a later post. Let it suffice to say that gold, due to its inherent scarcity, will never, ever work as the day-to-day money of any economy.
Indeed, the idea that it could work is foolish, and is a definite reason the entire world has entered the 2008 Depression (to say nothing of the 1929 Depression). The idea that a paper currency could be 'as good as gold,' and that gold could function as a day-to-day money, are both flawed. We will explore this concept, as well as others, in the near future.
One of the reasons the United States went off the gold standard, and indeed one of the primary criticisms of gold-as-money, is that there is not enough gold physically in the world to have a smoothly-circulating monetary system. This is indeed true, both now and in the past. Historically, gold was not a form of money which circulated. Rather, it was more of a store of value, or for exceptionally large purchases (say, an apartment building or two). Gold has always been too scarce to serve as a day-to-day form of money.
To remedy the problem, one can turn to 'lesser' metals, such as copper, nickel, and silver. These metals are more commonly discovered. Discussion of these other metals as money will be for a later post. Let it suffice to say that gold, due to its inherent scarcity, will never, ever work as the day-to-day money of any economy.
Indeed, the idea that it could work is foolish, and is a definite reason the entire world has entered the 2008 Depression (to say nothing of the 1929 Depression). The idea that a paper currency could be 'as good as gold,' and that gold could function as a day-to-day money, are both flawed. We will explore this concept, as well as others, in the near future.
***
We've posted more discussion about problems with gold standards on the Silver Money Report.
Posts
No comments:
Post a Comment