Gold is Money

 

 

 Public Gold Gold Bar 20gm & 50gm

All of today currencies are fiat currencies. Fiat currency is defines as not represent anything tangible but are only worth something due to government decree (namely legal tender laws). In the book "Principles of Economics" written by N. Gregory mention that Fiat money, such as paper dollars, is money without intrinsic value: It would be worthless if it were not used as money."

"We have gold because we cannot trust Governments."

-          President Herbert Hoover

 

On the other hand, gold are the currency which not created and controlled by governments. Gold was once the main currency in most of Europe, Asia and Americans for the past few thousand years which up to 1971. Gold which evolved independently as money in the word's main civilization due to the following reasons:

1.  Rare

The amount of mined gold has increased only slowly, rarely more than 2% per year. 

2. Durability
Gold won't rot, break, crumble, decay, corrode or tarnish. Gold is unaffected by air, water, and even most acids.

3.  Compact

If all the gold ever mined were made into a single cube. Its edge would be 20 meters. Not quite enough to cover a single tennis court. (http:goldnews.bullionvault.com/node/259/print)

4.  Divisibility

Easily reshape it, flatten it, and divide it into tiny pieces.

 

"The modern mind dislikes gold because it blurts out unpleasant truths."

-          Joseph Schumpeter (1883 - 1950)

 

From 1934 to 1971, government currencies were backed by gold. This defined which at any time, you able to exchange a unit of any of the world's main government currencies for a prescribed amount of gold. For an example, you could exchange 35 US dollar for one ounce of gold. But in 1971, President Richard Nixon abandoned the Bretton Woods Agreement, devalued the dollar, raised the fixed price of gold fictitiously to $37.50, and slammed shut the gold window to stop an international run on the U.S. gold reserve. This is when the fiat currency started.

 

Examples of other fiat currencies include:

1.   Chinese bark currency (notes printed on tree bark, as recorded by Marco Polo), 1260 - 1360. One of the earliest fiat currencies, ended in hyperinflation.

2.   Banque Royale Notes in France, the ‘Mississippi system' (designed by John Law). Issued in 1716. Collapsed worth nothing by 1720.

3.   Continental bills, printed by the US Congress during the American Revolution. Began issue in 1775, shrank to 1/40 of their original value by 1780. Hence the saying ‘not worth a Continental'.

4.   Assignats in France during the French Revolution. Issued 1790-1796, collapsed to 1/600 of their original value by 1797.

5.   Marks in Weimar Germany, after WWI. Issued from 1919 to 1924, collapsed to three trillionths of their original value. This was the currency that was carried in wheelbarrows towards the end. 

 

Hence from an historical perspective, the only question is how quickly the US dollar loses value, not whether it will continue to lose value. Until the 1971, a US dollar was worth 1/35 of an ounce of gold. But right till today the gold is about 1/1000 of an ounce of gold (http://www.gold-eagle.com/editorials_04/evans061304.html)

Another example, in Vietnam, gold plays an important role in the purchase of a home. From the moment a buyer and seller agree on a price to the day the paperwork and sale are completed takes a month or longer. During this time, the value of the Vietnamese currency may have fallen sharply, as the current rate of currency depreciation in that country is very rapid. Accordingly, the buyer will arrange financing with a bank not in terms of the Vietnamese dong, but in gold, which holds its value in terms of purchasing power. This arrangement means the buyer will still have enough to pay the agreed price when the sale is consummated (responsiblegold.org).