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A gold standard system can take on a great many practical manifestations. Before 1800, in most places it meant gold and silver coins exclusively.
In the 1950s, it meant paper money whose value was linked to gold, even
as owning gold itself had been illegal since 1933. Some time in the
future, it might mean various forms of “e-money,” where neither coins
nor banknotes are used.
A bitcoin stands in front of a U.S. one dollar bill in this arranged
photograph in London, U.K., on Friday, Jan. 29, 2016. Photographer:
Chris Ratcliffe/Bloomberg
In all of these cases, the core concept is that the value of the medium
of exchange is linked to gold. Gold is the standard of value. It has a
multi-century track record of success in this role.
This is not much different than the eurozone today, where, instead of
gold, the euro is the standard of value. Sometimes this means using the
euro itself – which is a little similar, you might say, to using gold
coins. For more than two dozen countries, it means a currency linked to
the euro – a “euro standard system.”
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These countries do not have any domestic monetary policy. They trust
that the management of the euro will be beneficial. They get to
participate in a trade network among other euro users, free of the
problems of floating exchange rates.
In a gold standard system also, countries have no domestic monetary policy.
They trust that gold will serve its role as a stable measure of value,
as it has for centuries. They get to participate in a trade network
among other gold standard countries, free of the problems of floating
exchange rates.
I think that gold will still be the Monetary Polaris long after all that remains of the euro is a page on Wikipedia.
A “cashless society” could easily be based around gold. It would simply
be a matter of linking the value of bank reserves (deposits at the
central bank) to gold, and, ideally, making them redeemable in gold
bullion. Or, you could have independent monies in the Bitcoin model. BitGold, the successor to GoldMoney, now has over one million users.
When you see that a gold standard system is a value link, then it is
obvious that it does not matter if gold travels here or there, or if it
is in this vault or that vault, because it is all the same value
nevertheless.
I don’t think getting rid of cash is a good idea. It can quickly become
a system of surveillance and control. We would want people to be able
to use gold coins and bullion as a means of payment for large
transactions. You would also want a large and liquid market in gold
bullion, much like the new Shanghai gold exchange
– and not at all like the London gold market, or U.S. Comex futures
market, which are really paper-trading exercises divorced from any
transfer of bullion assets.
For roughly 2000 years – 2800 B.C. to 800 B.C. – people used gold and
silver as money, without making it into coinage. This was inconvenient,
because the metals often had to be weighed and assayed. Coinage was a
radical new innovation. Paper money first emerged in eleventh-century
China, but it was rarely used in most of Europe until after 1850. The
widespread adoption of paper money was also a radical new innovation.
Perhaps paper money too will fade, as people make more and more
transactions without it.
But, even if that happens, we are still left with the basic choice that George Bernard Shaw expressed in 1928:
The most important thing about money is
to maintain its stability … You have to choose between trusting the
natural stability of gold and the honesty and intelligence of members
of government. With due respect to these gentlemen, I advise you, for
as long as the capitalist system lasts, to vote for gold.
Just look around you. Yellen. Draghi. Kuroda. Negative interest rates.
Brexit. The collapsing middle class. This is all pretty pathetic stuff
compared to the great successes of the pre-1914 era, or the fantastic
global wealth creation of the 1950s and 1960s. For now, we have to live
with it. But, maybe not too far in the future, we might be able to
choose again what kind of system we want. I vote for gold.
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