I hear some economics arguing that currency should be pegged to gold as a way of ensuring that its value isn’t arbitrary / volatile but I don’t understand how this would solve the problem. I understand that gold is a scarce resource that is difficult to mine but is it this alone that gives it intrinsic value ?
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There’s nothing inherently valuable about gold. It’s just that it’s less volatile than currency due to the fact it needs to actually exist in the physical world to be used – it’s not just numbers printed on paper or miantained in a computer system. That makes it less prone to change in value, both because it’s more difficult to add more gold to the market, more difficult to destroy it, but also because this unwieldiness has a psychological effect: gold is more stable because people consider it to be more stable. And all that contributes back to its value as a stable form of wealth in a volatile world.
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