The historical perspective on money and its value, as epitomized by J.P. Morgan’s 1912 Congress testimony stating “Gold is money. Everything else is credit,” remains a critical lens for understanding today’s financial landscape. This blog post delves into the complex world of currency, highlighting the enduring value of gold and silver against the backdrop of modern fiat currencies.
This article is a summary. Please read the original article by John Gideon Hartnett on the Mises Institute think tank website, here
Gold and Silver: The Traditional Standards For centuries, gold and silver have been considered the truest forms of money. Their intrinsic value, unlike fiat currencies, is not dependent on government decree. J.P. Morgan’s statement underscores this enduring belief, even as we have moved towards more modern forms of currency.
The Shift to Fiat Currency The transition from a gold-backed currency to fiat money, particularly in the United States since 1971, marked a significant shift. The dollar’s diminishing gold backing and the Federal Reserve’s creation of more fiat currency have raised questions about the true value and stability of modern money.
The Current State of U.S. Gold Reserves As of November 2023, the U.S. Treasury holds 261,498,926.24 troy ounces of gold. However, this figure represents just a fraction of what would be required to back the current M2 money supply with gold, based on the latest valuations. This disparity highlights the growing gap between traditional monetary standards and the realities of modern economic policies.
The Question of Auditing Gold Reserves Uncertainties surround the exact amount of gold in U.S. reserves, with the last official audit’s timing and outcomes being unclear. This lack of transparency feeds into larger concerns about the true backing of the U.S. dollar and other fiat currencies.
Fiat Currency: A Tenuous Hold Fiat currencies, including the U.S. dollar, are often criticized for their lack of intrinsic value. As they are not backed by tangible assets like gold or silver, their worth is inherently unstable, leading to potential issues like inflation and devaluation. The blog highlights the inherent risks of relying solely on fiat currency, which historically tends to lose its value over time.
Global Implications and the Petrodollar The blog also touches upon the global impact of these shifts in currency standards, including Henry Kissinger’s role in establishing the petrodollar system. This system has further complicated the relationship between fiat currency and real assets like oil.
BRICS Nations and the Future of Currency The emergence of the BRICS nations (Brazil, Russia, India, China, South Africa, and recently Saudi Arabia) as a trading bloc poses new challenges and opportunities in the global monetary system. Their move towards alternative currencies for trade, away from the U.S. dollar, signals a potential shift in global economic power dynamics.
The Role of Central Bank Digital Currencies Looking ahead, the blog discusses the potential impact of central bank digital currencies (CBDCs). While these represent a modern evolution of money, they still fall under the category of fiat currency and thus carry similar risks.
Conclusion: The Cycle of Monetary Systems The post concludes with a reflection on the historical cycle of currencies and the eventual downfall of fiat systems. It suggests that despite modern advancements, the fundamental principles of what constitutes ‘real money’ remain unchanged, with gold and silver still holding their ground against the ebb and flow of fiat currencies.