How is gold so valuable and the basis of currency, if it’s just being stored and not used for anything?
In: Economics
Gold was used as a currency because it was malleable and it didn’t corrode. I don’t think there’s a currency currently backed by gold either, but when it was, a gold backed currency stopped inflation as the government couldn’t print money past it’s gold supply.
Well for one gold has a fixed supply, therefore, central banks cannot go crazy and “print” more of it.
Second, the economy organises itself based on price, profit margins, interest rates… A volatile currency makes that organisation difficult – it creates chaos. Gold provides stability.
Third, gold is perpetual.
As many have mentioned. No currency is back by gold anymore (or that I am aware of). But central banks hold them as reserves.
I don’t believe any currency in the world is still backed by gold. Back in the day you were able to take your paper money to the bank and exchange it for gold.
Gold is used for way more than currency, That’s where it’s real value is now.
But long ago, it was something shiny, rare, and something people wanted. They wanted to make shiny things out of it, and the knew others did too. I’ll trade you a pinch of this shiny metal dust for a pint of beer.. you’ll trade that cup of shiny metal dust to pay your mortgage on your bar. That shiny metal keeps getting traded till someone is wearing it as a crown. But at the end of the day, it’s only currency because we said it is.
Kinda like the $,€,£,¥…. it like gold is only worth what we say it is.
Iirc, the money we have in circulation is supposed to represent X-ammount of gold stored. That’s why gold just sits. Hopefully there will be smarter answers than mine.
Back in the past, gold was valued as a precious metal because it was shiny and pretty. And soft, which meant it could be shaped easily.
It was used as money because it *was* a precious metal, so it was a store of value. It didn’t rust, could be made pure, could be made less pure, could be formed into standard-ish shapes like coins and bars. So it was useful for trade with strangers.
It’s shiny, rare, and doesn’t rust. That’s it. In fact, the fact that we don’t use gold for anything important makes it more useful for currency because we don’t have to worry about using it all up.
Money is just weird like that.
Just like any other thing in finance related to currency it is based on the confidence of the consumers. The confidence it storea value and that it resist inflationary pressure
Because people agree it is, basically. Money has always been something of an illusion – it’s there so people don’t have to barter and figure out what the change is when you pay for two cows with a large pig and several chickens. For instance.
Currency is just something that physically represents money or value – a lump of gold, a coin, a banknote, a check, etc. Gold got used, back when, because it was shiny, easily shaped, and didn’t rust; lumps of it stayed the same, and could be tested for purity fairly easily. (If you see someone biting a coin in a book about older times, that’s actually what they’re doing, seeing how soft and workable it is.)
Where it’s piled up in a vault, it’s there to represent “I have all this value stored here” and “Other people agree, pretty much, on what one of these gold bars is worth, so I know what I’d get it if I sold it and got cash for it”.
Most money (maybe all?) these days isn’t “backed by gold” any more – the government doesn’t need to keep certain quantities of gold in a vault and, on request, exchange bits of it for bills or coins.
The idea that money’s worth what everyone agrees it’s worth is what supports currencies nowadays, and is why different currencies rise and fall in value relative to each other; sometimes investors think Canada and its currency is more stable and investable in, and sometimes they think the USA’s, or China’s, or Begium’s euro, is.
–Dave, cryptocurrencies basically work this way too; there, what “backs” them is that there’s a finite amount of SOMETHING related to it available, or else the game it’s used in values items at shopkeepers at certain levels. etc.
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