I see this all the time, mostly when references are made about the dollar and how it was once backed by gold
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In the past, the United States had gold equal to the value of all the money in circulation, to guarantee the money printed had value.
The United States left the Gold standard (as guided by FRD) in 1933, a move that most economists warned would be the collapse of the country, and the end of western civilization. The new law enacted by congress said that United States citizens had to turn in, for a set value, all gold worth at least $100.00.
Of course, those economists were morons, and most likely were just protecting their own investments, instead of protecting the best interests of the United States. (A trend that continues to this day in most economists and investors.)
In 1971, Richard Nixon completely severed all gold to money ties, by eliminating the U.S. standard valuation of gold. In 1974, President Johnson signed a law allowing citizens to own gold over $100.00. Nixon would have signed the law, but he was a crook, despite his going on television saying that he was not.
In a technical sense, it means the government agrees that you trade a specified amount of currency for a specified weight of gold.
In a practical sense, it is “paid for” and means any of the following:
a) chronic unemployment and underinvestment in the economy,
b) a government that is slowly undermining its promise to exchange money for gold until one day it cannot meet that promise
c) a population with lowered wages but works hard to export what they make for more gold imports
d) or a helluva lot of constant gold mining.
The only real upside to a gold system is it holds back the trickle down people from freely printing new money to give to already-rich people, which they do these days.
That was the gold standard, going back to a time when currency was made of precious metals, to a standard weight
Here’s this piece of paper and on it is written pinky promise that you can exchange it for a piece of gold if you want to. Thats what gold backing means.
It’s kind of a stupid arrangement. The state gets monetary policy dictated to it by mines and the people don’t get quite what it says on the tin. If ever there was en masse bankrun to really get these pieces of gold, there is a very good chance the central bank would have come short.
If you want a precious metal then they sell it by weight, buy the real thing. If you want an medium of exchange, then modern money is better at it.
Before you get caught up by the goldbugs (people who want to return to the gold standard), know that having your currency supply not be in your control is horrid for many, many reasons. There’s a reason nobody uses it anymore.
Part of the whole BTC scam is that it appeals to goldbugs.
If a curency is backed by gold, then the government that issues the currency has a giant vault or warehouse somewhere full of gold. All the money they issue is worth x amount of gold. For example, the British pound sterling was originally worth exactly one pound of sterling silver. With gold standard currencies you can hypothetically take your currency to the government and exchange it for physical gold bars. Because the currency just represents what the government has in their vault.
The weakness of the gold standard is that the government can only issue as much currency as they have gold. If they want to issue more, they have to obtain more gold somehow and stuff it in their vault. This is bad for the economy in the long term, as you can easily end up in a situation where they are more goods and services in the economy than there is currency to buy them. This is called a liquidity crisis and it is very bad.
It means you can redeem your cash with the state for physical metal at a fixed exchange rate. $/oz
Earlier money was just pieces of paper which said that the government promises you a certain amount of gold in exchange for.
Nowadays money is just pieces of paper that are valuable because the government says so, and the majority of people trust the government.
It means at any time you can go to the body that issues the currency and exchange it for a specific weight in gold. Gold prices fluctuate relative to the dollar now, so the amount of gold you can get from a dollar is not guaranteed, so the dollar is not backed by gold.
Holy hell there are a lot of wordy answers here.
TLDR: Take all the weight in gold a nation has, divide it by all the currency that nation creates, and that is how much gold each unit of currency is worth in a gold backed economy.
With that being the case, all trade with that currency is considered the same as trading for that amount of gold instead. So the currency is gold backed.
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