We started out using silver coins. They worked well as money. Everyone likes silver, and it’s durable. It’s conductive (the most conductive of metals), pretty (jewelry), and is overall considered a valuable thing. So it made sense to use it as currency. Eventually, we switched things up. Paper was brought over from China to Europe, and then Gutenburg made the printing press. Bam...hello, paper currency.
Okay, it’s not that simple, but you catch our drift. Even after we switched our currencies over to paper and other metals, many fiat (government-backed) currencies still “backed” their currencies with silver (and/or gold). A government choosing to peg a unit of their currency to a certain amount of silver is called the “silver standard.”
For instance, if the U.S. dollar was on the silver standard, that would mean you could turn in your U.S. dollars to the U.S. government in exchange for the pegged rate of silver per dollar. "Gimme as many silver bars as $100 USD is worth, plz and thx."
For hundreds of years, many people thought that this (backing worthless paper currency with something legit) was a requirement. The silver standard, the gold standard, or the bimetallic (both gold and silver) standard. Something. Why would people trust holding some worthless paper if the government wasn’t promising it was actually tied to anything valuable?
Well, we can all ask ourselves that today, since the U.S. dollar and many modern-day fiat currencies aren’t backed by silver nor gold. We’ve been with our currencies long enough...or maybe we’re just cocky enough in our little civilization we’ve built for ourselves that we don’t think we need to back currencies with anything real.
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Finance: What is the Gold Standard?4 Views
What is the gold standard? Alright people well it's a kind
of value number line that everyone trusts gold gold gold gold yeah like [hand draws line against ruler, fills with gold]
that an ounce of gold in India is generally worth the same as an ounce of [map of world]
gold in China the US Argentina even Somalia assuming it's an actually real
gold and not fake gold or pyrite yeah yeah we know what you did [Somalian with gun in village]
alright well because gold is so universally or planet airily trusted it [gold ingot floating in space]
kind of comprises a monetary system unto itself [gold ingot orbiting earth]
its economic unit is the heart of most modern economies or at least their [skeleton with golden heart]
history and like a tub of Neapolitan ice cream it comes in three flavors species [tub of ice cream]
bullion and exchange alright so let's start with gold species with Vichy but
it's way better it is the standard monetary unit associated with gold coins
well obviously in a world where gold is being exchanged for things of value like [crate of good and bag of gold ]
mining picks Levi's jeans and food gold itself or the store of value has to be
modularized in the standardized units and that's what gold species is all
about alright next up the gold bullion standard alright well that's a system
where gold coins are stored in the coffers of governments as a kind of
collateral or guarantee against a usually paper circulating currency like
the US government has a whole bunch of gold in Fort Knox in Kentucky there yeah [US government building]
and they guarantee the paper value of a dollar in theory based on that gold
reserve in Kentucky even though today it's a small tiny rounding error of all
the paper that's out there alright well finally we have the Gold Exchange
standard which is usually simply a government backing or guarantee of a
fixed exchange rate for what the government will do in return for them [Uncle Sam holding cardboard sign]
being given an ounce of gold well the real gold standard however kind
of faded away through the 20th century as so many countries drew irresponsible [highway sign saying "now leaving Gold Standard]
financial practices as the norm norm the quote honesty unquote of a fixed rate
gold exchange simply put too much pressure on the desire for countries to
have internationally weak currencies hoping to stimulate
exports from their own hard-working citizens the big advantage here well in [Fidget Spinner boat in Atlantic ocean]
essence the gold standard limits the power of government to make too many [Uncle Sam holding knife]
stupid moves and the foundation of that control is that if a government's
currency or ability to buy stuff is limited by the amount of gold they have
in their coffers well then they have to live within their set budget and I like
the rest of us right unlike a paper backed currency like what we have in the
US governments then can't just run a printing press anytime they want [dollars getting printed]
printing money out of thin air making more gold to pay for I don't know
congressman pickpockets private shuttle from Virginia to DC or a new five [congressman getting out of taxi]
hundred thousand dollar after-school program for kids who are addicted to [kid biting pencil in class]
biting pencils anyway the biggest disadvantage here is that governments
are actually then culpable for the money they spend ie their budgets that's the
problem with a real full gold standard it forces people to act financially
responsible yeah that would be terrible well when you look around that would not [wheel of fortune landing on Greece/Somalia]
be such a terrible thing at all