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Comment by tastyfreeze

17 days ago

The first currency to be gold backed will take the crown. China appears to be building towards that end.

16 comments

tastyfreeze

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unethical_ban  17 days ago

I don't understand why gold-backing is required. I'm a novice.

My understanding is that a reserve currency requires fluid markets and a stable, reliable, metrics-based currency policy. It's why the Fed is so stubborn about its relatively simple policy goals: 2% inflation and low unemployment.

  • tastyfreeze  17 days ago

    Partially gold backed reduces counter-party risk. Fully gold backed, and exchangeable, eliminates counter-party risk.

    China appears to be attempting to reproduce what the USD was before it was free floating.

    USD is currently backed by debt and nominally military might. If the US defaults then all of the US bonds held by foreign banks become worthless. That is an enormous risk which is why countries have been divesting from US bonds. If USD was still gold, as it was before 1913, if you hold your money it cannot be made worthless by a third party. After 1913 USD became gold backed bills with partial reserve. It is why USD became the global reserve currency. But, reserve requirements were reduced and more paper was produced. In 1971 Nixon removed the convertibility of paper bills to gold metal effectively stealing the gold of any nation that asked the US to hold it.

    One of my favorite bits of currency trivia is that a $20 double gold eagle coin used in circulation prior to 1933 had a gold content of 0.9675 troy ounces. Twenty dollars in your hand was literally nearly an ounce of gold.

    • PaulDavisThe1st  16 days ago

      This simplistic explanation seems to elide the very point it makes ... a gold backed currency becoming a non-gold backed currency was done via a political decision making process, just as any decision to default on US national debt would be.

      You seem to suggest that people should worry about a default claiming if we had still had a gold backed currency the risk would go away ... "if you hold your money it cannot be made worthless by a third party" ... but it can be made worthless by a government any time that government chooses.

      The government (having defaulted on gold-backed debt) could simply refuse to convert the paper of the debt to gold (sure, that would be bad, but hey, they've already chosen to default, so not much worse ...)

      6 replies →

PassingClouds  17 days ago

Looks like the BRICS initiative is building towards this with an August announcement. But until it happens, this is still in rumor territory.

https://bmg-group.com/russia-confirms-brics-will-create-gold...

UltraSane  17 days ago

Who stores the gold? Who audits the gold? Who trusts the audits? It isn't hard to wrap gold around tungsten.

  • tastyfreeze  16 days ago

    All reasons that a paper currency backed by gold has never lasted long. Going to paper currency is the first step to start cheating by fudging numbers. The only money that has ever lasted is actual coins/bars of metal, precious or otherwise.

    • PaulDavisThe1st  16 days ago

      > The only money that has ever lasted is actual coins/bars of metal, precious or otherwise.

      1. most physical paper has a relatively short life, so one would not expect it to last as long as metal tokens

      2. paper was only available in much of the world several thousand years after the first currencies began, so it's not suprising that we have little record of paper money from very old civilizations.

      3. the idea that there was no cheating by fudging numbers before paper currency is completely ahistorical. The nature and ease of the fudging may have changed, but the fudging itself existed long, long before paper currencies became common.