Keeping it simple, we’ll try to highlight the features of money and how effective and or efficient the past/existing currency system was/is. No doubt everyone has at one point in time or another made payment or exchanged an item for another as a form of payment for good and services received. Gold, silver (in dust, coins and bars), precious stones have always been at the fore of the global payment system. In particular, Gold has always been a fantastic store of wealth i.e. investing in gold is a relatively safe investment.
In ancient times gold was the major means of paying for goods and services. One question should crop up in the mind at this point…”Why is gold precious and highly valuable?”
Gold as a metal itself doesn’t have any intrinsic value but civilizations over thousands of years have given it value because:
- It is scarce and rare, although not the rarest metal on earth;
- It is durable, relatively inert and does not tarnish/corrode naturally;
- Relatively easy to extract and mold;
- It is beautiful and has nice aesthetics;
- Society says its valuable.
The fifth point above may seem out of place but it is the most important of all. Gold may be scarce and durable and beautiful but without society giving it any value then it will be as valueless as sand on the beaches. This can be likened to high school kids (in boarding house) using certain contraband items as medium of exchange (currency) to pay for goods and other services among themselves. To an outsider (someone outside the boarding school walls) the same contraband items will just be what they are i.e. no extra value. To the kids these items are worth a lot. So perspective is everything when it comes to the valuation of currency. The economists would like to say a currency’s value is determined by demand, supply, GDP, export, import, interest rate, inflation etc. Yes these can affect the value of a currency in an ideal world where the amount of money in circulation isn’t artificial nor intermittently disrupted.
Paper money as the example shown above is really paper for all it’s worth. The real value comes from what it is (or not) tied to. For currencies to be truly worth something and have some value then they must be pegged against some other valuable item such as gold. Taking this line of thought further, the US Dollar was gold-backed at some point. This meant that for every US Dollar that was printed there was an equivalent amount of gold in a vault. So one could take the dollar, walk up to the bank and exchange it for a corresponding amount of gold or silver. The above is a twenty dollar bill (in Gold certificate). You could walk to the bank and have that exchanged for 20 dollars worth of gold coins. That was then! Currencies of other countries of the world were all tied to the dollar and invariably tied to gold. So they DID have some gold value depending on their value against the US Dollar.
The dollar notes above clearly show the level of relationship the dollar had with gold. This gold standard was severed in 1973 by US President Richard Nixon. This was mainly due to the fact that the US had in circulation more Dollars than it had stored in gold. This is indicative that the dollar was printed arbitrarily and not according to the fundamentals of valuation stated previously. So the dollar today is only worth a fraction of what it used to be due to inflation. If the dollar could have been printed more than what the economies of valuation dictated then the system of valuation in its entirety is flawed and questionable.
Assuming the rules of valuation were only broken once and we assume further that the global economic anomaly has been corrected and all currencies are now truly and well-valued and always will be then we are all receiving our actual worth of properly valued paper-money. But is that the case? Is it?
With knowledge of the level of devaluation, inflation and money creation (from debt through Fractional Reserve Banking) that is part of the current global economic system it quickly becomes evident that something isn’t quite right. Creating money out of nothing, so to speak literally, isn’t really the best way to keep the globe economically stable.
Generality of people choose to keep using the existing monetary system because that is what is available.
- What if there was another option!
- What if there was a superior system!!
Well there are several and Gold still remains one of them. The Blockchain is the foundation for another.