Saturday, June 24, 2017

Backed Currency – A Fairly Recent Phenomenon

Humans have been using metals as money for almost three thousand years. Until fairly recently, historically speaking, gold, silver and other metals were the basis for money all over the world.

Over the last couple of centuries, money lost its exclusive form of gold and silver coinage. Base metal coins and paper money, whose values were linked to gold at a fixed rate, gradually took over.

Linking printed paper notes and base metal coins to gold satisfied the requirement of money supply stability, given that the stock of gold is relatively constant, and only rises depending on how much new gold is mined from the earth.

Historically, the above-ground global gold stock has generally risen at the same rate as world population growth and global GDP (gross domestic product) expansion.

Renegade Inc. quotes James Turk, co-founder of Goldmoney, a global full reserved gold-based financial services company, who said:

“The above-ground stock [of gold] grows about one and three quarters per cent per annum, which is approximately equal to world population growth and new wealth creation. Money supply stability is thus guaranteed, in theory at least.”