A BRIEF EXPLANATION OF THE GOLD STANDARD
Governments Issued Gold Backed Currencies Following World War II:
Following the post WWII Bretton Woods conference in 1945, many of the world powers backed their currencies with gold. The United States had a policy that its currency could be redeemed for an equal dollar amount in gold or silver.
This policy was in force until 1971, when the United States unilaterally disengaged from the Bretton Woods agreement and discontinued the policy of redeeming dollars for precious metals. From that point on, the dollar has been a “fiat currency,” deriving its value from governmental edict and acceptance by the populace.
Why a Currency Backed by Gold Wouldn’t Work Today:
When the U.S. currency was backed by gold, the government controlled the price of the commodity and set it at $35 per ounce. Its price was static and therefore stable. Today, gold is traded on the open market and its price can fluctuate, often significantly. Any asset backed currency must have stability of the asset in order to preserve value and make fair exchange possible. In fact, any currency backed by an asset or commodity that has swings in price will not serve either as a medium of exchange or a store of value.
What a Currency Would Need Today to Preserve Its Value:
Any currency today would need to be backed by tangible assets that are stable and have a reasonable expectation of gaining value over time. This would negate the detrimental effects of inflation, enabling the currency to serve as a store of value.
Does Such a Currency Exist Today?:
Yes. But the currency isn’t issued by any government. It is a cryptocurrency called Moneda, and it’s issued by Monetran. Moneda is backed by an asset account containing interest bearing instruments such as short term U.S. treasuries. The result is a stable currency designed to be spent, saved, traded, transferred, or redeemed, and to steadily increase in value.
”In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value.” – Alan Greenspan
Mr. Greenspan had no knowledge of Moneda when he made that comment.
Perhaps he would reconsider it today.