| Is Gold Currency Or Not? |
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| Written by Paul James Harrison |
| Thursday, 01 July 2010 16:27 |
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The answer to this question requires a brief look into money history. Money appeared to solve two issues posed by economic development: fast value-circulation and the need for a real-value depository. By real-value we understand value with direct equivalent in goods. This leads to the conclusion that money is actually a representation of economic value and a universally accepted convention, much like numbers in mathematics.
The answer to this question requires a brief look into money history. Money appeared to solve two issues posed by economic development: fast value-circulation and the need for a real-value depository. By real-value we understand value with direct equivalent in goods. This leads to the conclusion that money is actually a representation of economic value and a universally accepted convention, much like numbers in mathematics. In order to be put in practice, money requires physical representation - an item able to circulate among people and be universally accepted. This physical representation is embodied by the various currencies which circulate the economic environment. History has seen many types of currency - usually a good perceived as having a real intrinsic value in an economic area. For instance, medieval Japan used the rice koku as currency - the koku being a weight measurement unit. Western Europe, on the other hand, used as currency coins fabricated from precious metals - gold, silver and copper - bearing various names and the face of the king or queen who issued it. This tradition continued in Europe for a very long time. Two long lasting examples of precious metal currencies are the golden Louis issued in France and the golden Sovereign issued in the Great Britain. Both currencies circulated for a long time, not only in the countries were they were issued, but in the entire Europe. Their large circulation area leads to the conclusion that their value derived from being made of gold, not from belonging to a certain economic area, as it is the case with modern currencies. This system was institutionalized by many European states who adopted gold as their monetary standard. The main characteristic of the system was that the national currencies were convertible into gold at fixed ratios. Great Britain was the first to adopt the gold standard in 1717, followed by Netherlands in 1818, Germany in 1873, France and Spain in 1876. United States and Canada adopted the gold standard in 1853 and 1873 respectively. The use of gold as a value of reference is called the gold standard. Its main treat was that all currencies could be converted into gold on demand, at fixed ratios. Great Britain was the first country to adopt gold as a standard for the value of its currency in 1717 and the rest of European powers followed. The United States and Canada adhered to the gold standard in 1853 and 1873 respectively.National currencies continued to be convertible into gold, with brief interruptions, until 1971, when the United States ceased the dollar - gold convertibility in reaction to economic problems arising from the Vietnam War and to attempts by other states to undermine US economic influence abroad. This was the beginning of the end for the gold standard and the moment which saw the rise of fiat currencies, or paper money without any intrinsic value and which are not back-up by any asset. This is where the answer to our initial question becomes evident. No, gold is not currency. Not any more, at least. Today gold is a commodity. A very expensive one, whose value continues to grow, in spite of difficult economic climate. Gold represents an excellent investment for everyone in search of safe haven against inflation - which is seen as the major drawback of all fiat currencies. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. Learn from professionals how to buy gold bullion in times of recession. |