The gold standard is a monetary system in which the standard economic unit of account is a fixed weight of gold. Under the gold standard, currency issuers guarantee to redeem notes, upon demand, in that amount of gold. Governments that employ such a fixed unit of account, which will redeem their notes to other governments in gold, share a fixed-currency relationship. The gold standard is not currently used by any government or central bank, having been replaced completely by fiat currency. However, private currency, backed by gold, is in use.Why gold?Why gold
Many economies used gold as the currency standard due to its rarity, durability, easy divisibility, and the general ease of identification, often in conjunction with silver. Silver was typically the main circulating medium, with gold as the metal of monetary reserve. Even after silver was no longer basis of currency, gold remained a base global currency until the collapse of the Bretton Woods System in 1971. Under the gold standard, the function of paper currency was to reduce the danger of transporting gold, reduce the possibility of debasement of coins, and avoid the reduction in circulating medium to hoarding and losses, as well as to allow governments to control or regulate the flow of commerce within their dominion. Money backed by a specie, such as gold or silver, is sometimes called representative money, and the notes issued are often called certificates. One of the main disadvantages of the gold standard is that it artificially inflates the value of gold. The total amount of gold that has ever been mined is estimated at ~125,000 tonnes. At the current gold price of around USD $640 per Troy ounce, or around $20,000 per kilogram, the value of this entire planetary stock would be USD $2.5 trillion, which is less than the value of currency circulating. In the U.S. alone, more than $7.3 trillion is in circulation.
Early coinage
The first metal used as a currency was silver more than 4,000 years ago, when silver ingots were used in trade. Gold coins first were used from 600 B.C. However, long before this time, gold, as per silver, was used as a store of wealth and the basis for trade contracts in Akkadia, and later in Egypt. Silver remained the most common monetary metal used in ordinary transactions until the 20th century.
The Persian Empire collected taxes in gold, and when it was conquered by Alexander the Great, this gold became the basis for the gold coinage of Alexander's empire. The Roman Empire minted two important gold coins: the aureus, which was ~7 grams of gold alloyed with silver, and the smaller solidus, which weighed 4.4 grams, of which 4.2 was gold. These values applied only to the early Empire. Later Roman and Byzantine coins were frequently diluted with other metals, in an attempt to expand the money supply. The dinar and dirham were gold and silver coins, respectively, originally minted by the Persians. The Caliphates in the Islamic world adopted these coins, starting with Caliph Abd al-Malik (685–705)
In 1284 the Republic of Venice coined the ducat, its first solid gold coin. Other coins, the florin noble, grosh, złoty, and guinea, were also introduced at this time by other European states to facilitate growing trade. Beginning with the conquest of the Aztec and Inca Empires, Spain had access to stocks of new gold for coinage in addition to silver. The wide availability of milled and cob gold coins made it possible for the West Indies to make gold the only legal tender in 1704. The circulation of Spanish coins would create the unit of account for the United States, the "dollar" based on the Spanish silver real, and Philadelphia's currency market would trade in Spanish colonial coins.
No comments:
Post a Comment