Why Use Gold Currency vs. Paper Currency?

Posted by Cimarron on 2015-11-30 in Economics |
Gold currency

Why should you use gold currency as an alternative for US dollars and other fiat currencies?

History of Gold Currency

For 2500 years gold, silver, and copper were mediums of exchange.  Though people were free to trade or barter nearly everything from food crops and firewood to diamonds and other gems, they would gladly trade all they had for gold and silver because those precious metals in the form of coins, ingots, bars, or even gold dust or nuggets were universally accepted as money by everyone else.

If you only had wine to trade and you wanted a new coat, you had to find someone with one the right color and size who wanted to trade it for the kind of wine you had on hand. It was difficult to find the right match.  But with silver and gold coins, finding someone with the ideal coat who would sell it for hard cash was not difficult at all.

The Chinese were the first to use paper currency beginning with receipts issued by deposit shops (precursors to banks) that took deposits of metals and gems to secure them until needed by their owners.  Around 1120 A.D. the Emperor took over the deposit shops and started exchanging his own paper money, requiring all subjects to honor this paper as “legal tender”, thus creating the world’s first government-issued paper money.  This folding money was lighter and easier to carry than metals or gemstones, but could be exchanged back to hard assets at will (the emperor’s will, that is).

When Marco Polo returned from his first trip to China in 1291, he told the Western merchants about China’s use of paper money.  European goldsmiths (who refined and minted gold) started issuing gold deposit notes for private gold that they stored for their customers.

Initially, the notes were tied to the customer by name and had to be returned to the goldsmith and reissued in the name of another person if they wanted to use them in trade.  To speed things up, they were later issued “to Bearer” so they could be freely exchanged and acted as gold currency.

It didn’t take the goldsmiths long to discover that they could make a substantial amount of money by issuing more of these bearer notes than they had gold to redeem them.  They figured that not everyone would want to redeem their notes at the same time, so he wouldn’t have to have 100% of the gold on hand.  Thus began the “fractional reserve” banking system.  (More on that in another post.)

It wasn’t until 1695 that Western governments began issuing paper currency to pay wartime debts.  Most paper currencies were tied to gold and silver and each denomination of note was given a value in grams, troy ounces, or pounds of gold or silver.  The British pound was once worth a pound (16 oz.) of silver.

Eventually, governments began the bad habit of printing more gold currency than they had gold in their vaults, which always lead to inflation and economic instability.

President Franklin Roosevelt ended the Gold Standard for Americans on June 5, 1933, so that US Treasury Gold Certificates (gold currency) could no longer be exchanged for physical gold or gold currency but only for silver coins or other paper currency in the form of Federal Reserve Notes and US Treasury Silver Certificates. However, foreign banks could still redeem US bonds and currency for gold.

That ended in 1971 when President Richard Nixon terminated the Silver Standard and allowed US currency to “float” against foreign currencies. What we were left with is a fiat currency backed by nothing but promises of Washington D.C. politicians.  And you know what those are worth. ;0)

Relevance of Gold Currency Today

Today every country on earth uses a fiat currency as its “legal tender.” The Swiss Franc was the last gold currency to be trashed.  Now it’s tied to the fiat Eurodollar and allowed to float like the US dollar.

Since taking office in January 2009, President Barack Obama, has raised the Debt Ceiling 7 times, a total of nearly $6.5 trillion (in real numbers that’s $6,498,000,000,000.00). Through the private (not government) Federal Reserve Bank, he has increased the so-called “money supply” by over $3 trillion while adding no value to our currency at all.  In fact, every dollar of new Federal Reserve Notes reduces the value of the existing notes in circulation, causing the price of everything to rise. The government calls that “inflation” but it’s actually deliberate devaluation of the dollar (a dollar buys less each year).  Don’t believe me?  Check History of Cost of Living

This is unsustainable and eventually will lead to hyper-inflation and the collapse of our monetary system.  It’s happened before in many countries around the world. America is not exempt.

The US dollar is quickly losing its status as the world’s reserve currency as more and more countries trade goods in other currencies.  They no longer need to buy billions of dollars in US currency or bonds in order to trade for oil, lumber, wheat and other commodities as they have been since World War II.

Even our allies are reluctant to loan us more money by purchasing our bonds and notes because our national debt is way too high to ever be repaid.  The only reason they still buy them is that they do offer a better interest rate than European bonds, some of which have a guaranteed negative return.

The dollar today is worth about 4-cents compared to what a dollar in gold currency (gold coins or gold certificates) would buy in 1913 when the Federal Reserve Bank was chartered. Unless the US Congress does an about face and goes back to a gold-backed currency, the US Dollar will continue to lose value until it reaches zero. The only thing holding it up is other fiat currencies are in even worse shape.

Gold has retained its purchasing power.  In 1913, you could use either a 1 oz. $20 gold coin or a $20 bill to purchase a nice suit, shoes, shirt, tie, and belt.  Today’s $20 bill may buy the belt, but 1 oz. of gold currency will still buy the whole outfit.

The problem with gold and silver is the high cost of gold in today’s devalued dollar makes it difficult for most people to acquire gold by the ounce, and they wouldn’t know what to do with a 1 oz. coin if they had one.

One friend asked me how he could use it to buy $100 in  groceries.  “What do I do, shave slivers off a $1200 coin?” he asked. He was astonished to learn that gold comes in 1/2 oz., 1/4 oz., and 1/10 oz. coins (as silver coins used to), and even smaller by the gram.

Karatbars® are sold in 1 gram, 2.5 gram, and 5 gram increments and are traded routinely throughout Europe by thousands of stores and service businesses using the Karatbars Exchange®.  It is just catching on here in America.

Unlike Bitcoins and other digital currencies, these are physical cards with gold embedded in them that you can carry and exchange as gold currency.  For more information go to: Gold Cards

I’m a Yankee bean counter from the beautiful but too cold state of Maine now residing in Reno, Nevada where the snow stays on the tops of the mountains but leaves the valley alone most of the time. I have an opinion on everything, and I love to write, sometimes rant, about politics, economics, personal finance, travel, emergency preparedness, and a number of other eclectic topics.

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