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antonianoyes

Gold as Currency

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Gold as Currency


In ancient times, gold was used as a currency. It had great value compared to other precious metal such as bronze and silver. Gold could be used to purchase commodities and services over the counter and therefore it was a currency in the modern sense of the world. However, since the advent of paper money, gold has ceased to be used over the counter to purchase goods and services.

Nevertheless, in the international field, gold is an acceptable currency to carry out trade. Almost all countries around the world have gold reserves that give them the mandate to print paper money if they need it to flow in the economy. Countries like China have of late accumulated very substantial reserves of gold.  This gold can be used to buy things internationally between countries since each country needs some gold reserves, and everyone can agree on the value of the commodity. Also, if you interested in cryptocurrency too, read https://bonuscloudmining.com/reviews/iqmining-review/  for more info.

International investors also keep gold as their currency. Because of the unpredictable nature of paper money, gold becomes a safer currency to keep. For example if one buys $1 million worth of gold, then it means when the value of money will depreciate, most likely the value of gold will not – it may even increase. Money is printed and is always circulating in the market; gold however is mined and it is not always available. The demand for gold cannot be satisfied by the supply from the few countries that mine gold. Therefore, it would be very difficult for the value of gold to go down as demand continues to rise.

Some people have called on others to shun money and instead keep their investments in gold. The challenge comes when you want to use the gold because no local store can accept gold as a legal currency. Therefore, at present, gold remains only an international reserve currency. 

Edited by antonianoyes

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Keeping gold as an alternative store of gold will always be safe due to its inherent value as a commodity. As you stated, gold is mined but there is a limited supply that can ever be mined from the earth. Due to this and the fact that the worth of all commodities, both physical and immaterial, in the world has surpassed the current realized value of gold would make the current use of gold as tradeable legal gold impractical (why the US moved off the gold standard in the middle of the 20th century). I don't believe any country ties their currencies to gold at the moment, however, only Lebanon with a gold to money supply ratio of 1:2 would realistically be capable of doing so.

If a country really wanted to go back to the gold standard, the current price of gold would have to increase exponentially by 20-30x to cover the value of all currency in circulation. This in turn would be fantastic for private holders of gold, however, considering the use of gold in consumer electronics among other uses it would result in an increase in the price of electronics weakening the demand of the electronics industry. Additionally, once the world supply of gold has been mined then inflation would be controlled by the increase of consumer products with and then the next inherent problem with this is that countries would be incentivized to hold gold rather trade internationally.

Gold does have many advantages, however, in a global economy with a high reliance on technology, gold is no longer a feasible currency option.

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