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<p>[QUOTE=&quot;Texas John, post: 1179989, member: 25813&quot;]Well, see that&#039;s sort of the point. America issued much more nominally &quot;gold-backed&quot; currency, especially in the years after the Panic of 1907, than the Treasury had gold on hand. FRNs were issued at a five-to-one ratio, silver certificates were &quot;backed&quot; by silver dollars that had less than thirty cents worth of silver in them. National Currency was fractionally backed by government bonds. United States Notes had no backing at all. Only gold certificates were backed dollar-for-dollar by Treasury gold. Nonetheless, all those various forms of currency circulated freely and were freely exchanged for one another.</p><p><br /></p><p>So long as people perceived that if they wanted to exchange their paper notes for gold, they could do so easily, then most people felt no need to do so. Gold is heavy, clunky and makes you walk funny if you&#039;re toting a lot of it. A 1908 Model T sold new for $860. Who would want to haul forty-three double eagles into the dealership to buy one, when he could just bring in a few pieces of paper that everybody saw as worth the same?</p><p><br /></p><p>The problem only became evident in 1932, when large numbers of banks across the US began to fail in the wake of the ongoing depression. Then, people were afraid of what the future would bring, and wanted to keep their money at home and in gold, not currency. As the gold in the banking system vanished into mattresses and coffee cans, the unbacked portion of the currency in circulation became proportionally greater, FRNs began to be withdrawn because they was no longer gold to back them, even at a five-to-one ratio, and by the following year the banking system had ceased to function and the economy was moribund.</p><p><br /></p><p>Any attempt to reintroduce a gold-backed currency would be similarly at risk today. Speculators would be tempted to make sudden, coordinated large demands for gold, to see if they could manipulate the market value and profit (that was a major contributor to the Panic of 1907, and to other financial crises beforehand). Even if they were unsuccessful, and people again perceived they could get gold on demand for currency, a disaster, severe economic downturn, war or other event could easily trigger a sudden run on gold, with the same disastrous consequences as in the 1930&#039;s.</p><p><br /></p><p>While it is true that the introduction of a nominally asset-backed German currency, the Rentenmark, did break the hyper-inflation that plagued that country in 1923, it was a wholly psychological effect. People couldn&#039;t freely exchange the new currency for anything, and the reasons it worked were wishful thinking and a new government policy of giving the Reichsbank independent control of the money supply. </p><p><br /></p><p>Basically, if a currency is perceived as being stable, the details of the legalese under which it is issued don&#039;t matter, and if it&#039;s perceived as being unstable, no claim that it is asset-backed does, either.[/QUOTE]</p><p><br /></p>

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