People have traded gold for a really long time. With accurate measuring devices and the internet for variable prices, why do people use individual nations currencies and crypto which are often unstable?
In: Economics
Imagine a simple tiny economy. You and your 4 friends have 10 gold coins each. The total economy is worth 50 G.
Everyone is happy exchanging coins for services, right?
But imagine now that you start making really beautiful carved flowers out of a local stone. You sell them for 1G each. They are worth 1G. And you make 1 a week.
So, in the space of a month you have added 4G with of product to the economy; there’s 10% more value in the system. But the amount of gold representing that wealth hasn’t increased. So some people have a mix of gold and flowers. Now, they could now barter with both as they have value, but now you have to carry stones and gold around; gold is not your currency, you are just using the value in the items. You can’t just produce more gold coins to represent the new wealth in the economy because there’s no more gold where you are.
This is why fiat currency is so powerful – you can represent wealth and wealth creation without having to back it with a specific resource. As economies grow you can simply create more ‘exchange tokens’. Barter of physical valuable items is unnecessary.
Banks full of gold only work if you have enough gold to cover the value of everything in circulation and you can change that amount as the economy changes.
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