50th anniversary of the end of gold

Today (15.08.) marks the 50th anniversary of the end of the last vestiges of the gold standard. On 15.08.1971 (also a Sunday) President Nixon announced that the so called "gold window" was closed, i.e. that the US dollar could no longer be converted into gold. This decision has completely changed the nature of money and is therefore one of, if not the, most important single event in the 2500 year history of money.

To function as money, a commodity has to have certain characteristics including: homogeneity, divisibility, durability, desirability and scarcity. Gold and silver in particular fulfilled these characteristics like no other commodities and hence became money, first in the form of ingots, then as minted coins and in the last stages as commodity to which paper and token money was linked.

The characteristic of scarcity, i.e. the knowledge that gold can not be produced artificially and the realisation that the total supply of gold is natually limited instilled great trust in gold and trust in money (i.e. sayings like something is "as good as gold", or something is the "gold standard of services etc" reflect this age old appreciation of gold).

However, also in antiquity empires and kingdoms regularly diverged from the gold standard to create inflation, usually during times of war. In addition, the ancients ran dual standards with gold/silver on the one hand and copper alloy token coins on the other hands. We collectors still experience the difference in scarcity in the form of high prices for gold coins compared to the much lower prices for copper and bronze coins.

Since 15.08.1971 the natural scarcity of gold was replaced with an artificial scarcity based on the promise by central banks not to inflate the money supply and thus maintain the trust in money. A third option to create artificial scarcity has emerged in the last 10 years or so with cryptocurrencies that promise scarcity through in-build computer algorithms. A big question currently is whether the central banks' promise will remain trustworthy against the backdrop of the vast money supply increases of the last 15 years or so.

In any case, one attraction of numismatics to me is the fact that it deals with history in general and monetary history in particular and that it allows us to experience the intrinsic value of money. If I hold a solidus in my hands I can really feel through the physical characteristics of gold (heavy, shiny, durable) the value of money.

Since we all like to look at coins and since the solidus exemplifies the quality of gold currency better than almost every other coin ever minted, here is one of my solidi.

I chose a solidus of Marcian, i.e. a coin that was produced to the highest standards despite the rising political and economic problems that were increasingly engulfing the Roman empire at the time.

Marcian, 450 - 457

DN MARCIANVS P F AVG // VICTORIA AVGGG -- CONOB in exergue.

Mint: Constantinople
Year: AD 450
Measures:4.47g, 21mm, 6h
RIC 508; Depeyrot 87/1.

 

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I think there will be no choice but to go back to a gold standard. CBDC's will not solve the problem either as there is no limit to the number of coins that can be produced. Real value will have to come from digital assets that are backed or tied to gold.

 

This is one of my favorite gold coins, & the last year these $20 coins freely circulated

 

In today's world, the value of money is dependent upon the strength of the full faith and credit of the issuing government. In the case of the US, sadly that has gradually diminished in recent years. While, ultimately, the value of money, in general, may end up, once again, being dependent upon backing by precious metal or some other scarce commodity, the world will operate very differently if and when that economic criteria returns.

 

In the half century since the world abandoned the gold standard, gold’s price in dollars has increased roughly by a factor of 50. Dollar denominated bonds pay 1% interest per annum. Dollar savers are being robbed. Debtors are being rewarded. The largest debtor is the US government. This policy serves the State, which is so deep in debt that any return to real interest rates would otherwise render the debt service unpayable, without even more profligate increased fiat dollar creation. This is why there is no real champion of conservative fiscal policy in the legislature. IT IS TOO LATE.
The dollar is a depreciating asset, and the rise in stock prices, real estate, and commodities is at least in part a reflection of this. The deflationary force of increased efficiency in production (e.g., falling computer prices) does not seem sufficient to counter the inflationary effect of a wildly escalating money supply.
During the post WWI hyperinflation in Germany, this 700 year old bit of wealth storage from another time and place could be traded for billions of Marks. Billions.

The possibility it could be traded for billions of US dollars in the next fifty years is not zero. We will all be debt free, billionaires, and poor.

 

Like previous posters in this thread, I have some fear for the current monetary system.

I have never bought more gold coins than this last year. Here are some of them.

 

If I remember correctly Gold came out at about $60 at that time. Wish I would have bought some then.

 

Enjoyed the read Tejas, thank you.

 

Actually, based on Germany's hyper-inflation, that gold coin would have been worth TRILLIONS, not just BILLIONS! Good post!

 

I double majored in college in Accounting and Economics. All that has been said is true. Money is not money unless the citizens believe it is money. Once the populace loose faith in paper currency or even coins, it will take a wheelbarrow of gold to buy a loaf of bread. Stocks and bonds will become worthless because businesses can't pay employees. There's a lot more into it, but that's the start of the spiral downhill.

 

The german coin from the Inflation time with the highest "value": 1 Billion Mark
(1 Billion in german is 1 Trillion in english, in Germany it is Million, Milliarde, Billion, Trillion)


unfortunately not mine, Picture from Wikipedia

 

There are a lot of GOLD BUGS on this thread .

 

Let’s add a golden UFO-shaped Zoomorph from 500-800 AD, and combine the hottest Youtube subjects.

 

My aunt cleaned out the vault at her company and brought me a 100,000 Mark note from just before the war. It was a down payment for a purchase. Of course after the war started it was worthless. But, it was fun to have.

 

Given the nature of global commerce, keeping currencies pegged to gold was not sustainable. As pointed out, the supply of gold worldwide is extremely limited. Linking currencies to gold would severely limit the growth of money supply, which ever-expanding trade and commercial transactions demand. Such a link would be inherently deflationary in nature, making the global economy of today very problematic, if not impossible.

In earlier times, when economies were more nationally based and trade more limited than today, it was possible to have currencies linked to gold and silver, and to issue gold and silver coins, which were often reserved for very large transactions, especially in the case of the former.

Now, the US and other countries have currencies linked to the faith and value of the issuing authorities, in the form for the US of United States reserve notes. By doing this, countries can print money as needed, not constrained by the reserves of gold and silver on hand. This new (not really new, though) link has allowed the US and other developed countries, as well as developing countries, to fund massive social programs, help finance debt, and to help in times of financial stress, such as the recession of 2008-2009, through the printing of money for the government's purchasing of bad loans from major banks, thereby taking the bad loans off of their balance sheets. This measure would have been impossible if the dollar was still inked to the nation's gold supply.

So, human civilization has moved from the trading of shells and precious stones to crudely made ingots to gold and silver coins and bars to the issuing of currencies that are backed by their respective national economies. Cryptocurrencies are an outgrowth of our Internet economy and are another step, although one that is volatile, not benign environmentally, and are difficult to trace technically, hence their being the currency of choice for hackers, ransomware attacks, and criminal organizations in general. I am not certain, given these issues, that they will replace government-issued currencies as the foundation of our everyday transactions.

Over the years I have collected coins, mostly silver and some bronze, but mostly silver for their historical significance, political messages and artistry (especially ancients). They harken back to times before nano-seconds trades on stock exchanges, The World Bank, the IMF or the G10. As such, these coins have always had a special place in my heart.

 

Herein lies the issue. Issuing currency as the central banks and governments have is destroying faith and value.

 

I think that you have some good general points: high interest rates help savers and penalize lenders and borrowers; low interest rates favor lenders and borrowers by making money "cheaper", to the detriment of savers. I think German bonds are or were yielding negative rates, for one extreme example. The very low borrowing rates also favor governments at the federal, state, county and municipal levels, enabling them to borrow to fund programs and projects, as well as finance debt. At the county and municipal levels this usually requires voter approval.

When we get into the issue of real estate and commodities, the picture becomes complicated, due to issues of supply and demand, supply chain issues and politics, such as the issue of lithium deposits, a key mineral source for the green economy. Add to that other issues, such as the climate crisis, wars and trade disputes, and the picture becomes more muddled but also reflective of the times we are living in.

 

It can have that effect. The metrics used today to determine a currency's value, including GNP, political developments, savings rate, and to a degree debt can impact the demand for that currency on the trading markets.

Having said that, though, I think any return to the gold standard would cause a collapse economically - think of the deflation of the 1930s, the Great Depression when money was hoarded and which helped to lead to World War II.

The fact is, were people to demand redemption of their notes for gold or silver, in the midst of a crisis, the supplies would dry up quickly and governments would be insolvent, leading to a complete collapse of the world's economic order and ensuing chaos.

I think there are issues that need to be address: economic equity and economic sustainability being primary, but chaos is not a good state to be in, especially in a world armed to the teeth with all manner of weaponry.

I think the US and the world has crossed the Rubicon with the US's abandonment of the gold standard in 1971. Given the size of the global economy today, faith and the above metrics are the means to how currencies are valued.

 

I'm curious how many know what's coming? We are in same adoption for crypto that the 90's were to the internet. It won't be long before everyone with a smart phone will be able to use the digital version of their respective currency just like cash, except the transfer will be instant and almost free to any where in the world. While the value of decentralized coins fluctuate a lot not making them suitable for daily purchases, there will be stable coins that central banks issue that are. One valid concern privacy advocates have is that every transaction is visible on the blockchain forever, which eliminates the anonymity that cash has.
I believe it will be the decentralized coins that will not only be backed by gold, but most assets on the planet. You will be able to move anything of value instantly anywhere in the world, something that has never happened in humanity before.
There has been a lot of talk about crypto being bad for the environment, but the ones that will be used by the banks use very low energy. With over 10k cryptos in existence, there are numerous ones that are considered green.
So it's not a matter of if these things will happen, but how soon.

 

I guess you meant "a wheelbarrow of paper money" to buy a loaf of bread.

In real terms, Gold has very much preserved its purchasing power over long periods of time. For example, it takes about the same amount of gold to buy a standard house in 2020 compared to 1920.