The Gold Standard- A Scary World Without a Central Bank

Humans are obsessed with gold. It’s shiny, malleable, dense, and most importantly, exclusive.

Gold was originally used for religious purposes, in constructing figures and monuments.

However it soon evolved into an item of fixed monetary value, used for global trade and eventually the basis of a currency. The rise and fall of the gold standard is what eventually made way for the currency we know today, the fiat currency.

The Best of Times

The first version of a gold currency came about in 700 B.C. when gold was made into coins. Gold coinage was not perfect, as people chipped of small shavings of coins to get enough gold to make their own bullion. Eventually, paper money was introduced in Europe to issue debt instruments. The struggle between paper money and gold currency resulted in the formation of the gold standard.

The development of the gold standard occurred between the late 1600’s and early 1800’s. England was the first country to officially adopt the standard, and as global trade picked up countries settled trade deficits with gold and created stockpiles of it. By 1900, more than half of the world operated on the gold standard, and it worked very well until World War 1.

The Worst of Times

With political alliances shifting and finances dissolving during the war, countries lost confidence in the gold standard as a steady institution. The U.S. dollar and British pound became more abundant , and smaller countries held these currencies instead of gold. Eventually, the U.S. increased the amount of paper money require to buy an ounce of gold. The higher price increased the amount of conversion from gold to U.S. dollars.

At the end of World War 2, the U.S. held more than half of the world’s monetary gold supply. However, that supply started to see depletion as the world started rebuilding after the War, with funds pouring out to countries all around the globe. Eventually by 1971, President Nixon severed the dollar’s tie to gold, and since the international economy was dependent on the dollar, his decision essentially severed all global currencies from gold.

The Future is Fiat

Most countries now operate with a fiat currency, the value of which is determined by the government, and not dependent on a physical asset. Gold is now seen and can be traded like a currency, and is considered a very safe asset.