What would happen if the world returned to the gold standard?

I’ve always been fascinated by the concept of bullionism. The idea that wealth is defined by the amount of precious metals owned.

Do I believe it? No it’s just interesting to me.

So what do you guys think would happen if the world returned to the gold standard?

If tomorrow the US government said that $1 was to be defined as 1/2000oz of gold. In other words $100 = 1/20 oz.

Right now the market price of gold is just below $2,000 an oz so the dollar right now can technically be redeemed in gold via any bullion seller at the price of $2,000/oz via the markets even if it’s not the government.

But what if the government took on that role and defined the dollar as a certain amount of gold?

One thing discovered during the gold standard is that if people believe they can redeem banknotes for gold at any time they often don’t actually redeem it and use the banknotes as a convenience solely due to the reassurance that it could be redeemed for gold.

So basically the government probably wouldn’t have to be redeeming a bunch of physical gold as people would still use banknotes for convienence.

Which means banknotes wouldn’t really have to be 100% backed in gold.

Would it halt inflation?

I know the gold standard has alot of problems and isn’t feasible in the long term due to the fluctuating price of gold based on outside supply and demand and the inability to influence monetary policy during times of economic distress..

But what if?

The idea of gold coins in circulation just blows my mind. When I was born even silver coins were long out of circulation.

 

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It might be a little like a currency peg, but to gold instead of a different currency.
Currency pegs when they are strongly backed, like the Hong Kong Dollar, can be stable for a long time. It the peg is only moderately backed by reserves, such as the Argentine Peso to US dollar peg of 1991-2002, it can be quite unstable. As soon as people believe that the peg may break, they tend to pull their money out of the weaker currency, which can precipitate a collapse.

Anyway, switching to a gold-backed currency would have similar problems. Probably better to use gold as an inflation target if one were to go in that direction. Also, with high population growth and real economic growth, precious metal-backed currencies would tend to be deflationary, which is hard on economic growth. Makes it very hard to borrow money if a currency is likely to be harder to pay back in the future.

 

JP Morgan notwithstanding, gold is NOT money and hasn't been for a long time. Technically, it's legal tender, but I'd love for someone to borrow a $20 bill from me and then pay me back with a Double Eagle.

 

The first thing that would have to happen would be for 90% or more of the population of the world to die off, as there is not enough gold to go around to monetize it.

 

I believe a repeat of the action that precipitated our elimination of the Gold Standard could be repeated by a singular country. Here is the polite scientific answer:

https://www.livescience.com/19126-gold-standard-bad-idea.html

I personally believe the futile/frivolous waging of war would be eliminated.

JMHO

 

There is not enough gold in the world to support a gold standard unless the fixed rate is something stupid like $1 million an ounce or more.

All a gold standard does to put a limit on the amount of money that can be in circulation if it is rigidly enforced. That can be a good or bad thing. Too much gold would result in inflation. Look at prices during the California gold rush. Too little gold brings the economy to a halt or at least to a recession because there is not enough money available to run it. The U.S. had that problem just after the Revolutionary War in the 1780s.

In short it's what some people think as a "natural way" to determine the money supply, but the truth is it doesn't work. The real issue is the one that central banks grapple with constantly. How much money is needed to keep the economy going well?

 

It would work. But if the worlds currencies are pegged by 10000US an oz. gold. All would have to be reconstructed to $10000US = 1 oz gold. Other Countries peg theirs in similar fashion.
So, if you earn $100,000US a year pay= 0r 10 oz. gold.
So, it would also force govts. to live within a budget/ not go into 25 T debt. There is not nearly enough physical gold, so much would be in paper form. Still better then BITCOIN.

Gold is finite/ no lost cities of gold.....

 

I know there are plenty of people who believe that gold is the only true measure of value. I don't share that belief. I also don't believe that pegging the value of one thing (say, currency) to an unrelated thing (say, a metal) is in general a good idea.

It seems odd to me to believe both "central control of an economy is evil" and "the value of a currency must be dictated in terms of a metal".

 

Good debate going on here/ lots of brilliant minds on CT.

 

It seems to me you'd never get past defining productivity.

I work as a software developer. One could argue that I've "produced" nothing throughout my career -- I've just rearranged symbols in ways that cause other symbols to be rearranged. I haven't dug anything out of the ground, I haven't raised and harvested foods, I haven't even run machines in a factory. And yet, this career pays better than most of those others.

I produce abstractions that other people want, dare I say need. That work has value. It's not particularly constrained in supply, though -- there are developers who "produce" tens or hundreds of times more than I do, and nearly anybody could learn to do basic software development. How does that map to a limited supply of metal being dragged out of the ground?

 

I wish this were true. But it seems like people have decided that software just naturally never works completely correctly, and that it's more important to have new features than to make the existing stuff solid. (A little different in my current industry, but less different than you'd hope.)

And the value they deliver to their customers in this case is providing medications for clinical trials, with proper temperature control, proper blinding, and proper auditing. Yes, it is kind of a big deal.

Software validation is... hmm, no, I'd better rein in the cynicism here a bit. They do work harder at validation than other companies I've worked for. It helps. Some.

 

Productivity=$$$ rewards
For ex. I had 140 lawn/ garden clients in 2021. I kept my expenses below $50K/ no labour costs/ kept gas/ travel times to minimum. Also had very few equipment repairs.
My competitors hired staff/ had lots of repair bills/ gas cost due to inefficieny/ poor management.
So, I raked in 300K/ spent 50K on overhead/ expenses. In the end, I get about as much work completed in a hr/ what 6 hired staff accomplish. Difference is, I am making average $150+ hr/ they are paid $15@hr.

 

These folks never fail to amaze me.

 

There would be a lot of very poor people in the soup line again! As my father would say, "When you're on top there is only one way down." My opinion only (*_*)