Regarding reserve currencies, apparently some hedge funds paid their margin calls in gold last Friday as they were out of liquid cash.
So I can't help wondering if gold, or a gold backed currency will make a comeback.
Regarding reserve currencies, apparently some hedge funds paid their margin calls in gold last Friday as they were out of liquid cash.
So I can't help wondering if gold, or a gold backed currency will make a comeback.
Maybe. The problem might be, that there is only something like 12 trillion worth in gold - is that enough to back all the currency needs? It covers what there is now though.
Edit - and that includes all the jewellery in that estimate of the 12.
It can. But the problem with gold is that its value has been artificially set by governments in the past, which is problematic because fractional banking makes the money supply inflationary. This breaks the peg with gold, which is why money isn’t backed by gold anymore. Gold is too unwieldy to maintain a floating exchange value in a global market. The closest we can get is Bitcoin or something similar such as Litecoin or other fixed-supply cryptos. Maybe all of them.
Fractional reserve lending should be severely limited - but it isn't.
I don't disagree. I haven't quite come to a conclusion. Clearly, fractional reserve lending is, by design, inflationary. But using a pegged gold price can lead to lack of market liquidity, as we have seen historically. This is what led the USA to supplement the money supply with silver, until abandoning gold and silver altogether and moving to fiat.
What I don't know, and have not found, is what I described earlier, money backed by a free-floating asset. Bitcoin illustrates this well. You can redeem dollars for Bitcoin, but the price changes based on economic conditions. It seems to work, but it is not yet at the levels needed for global commerce and to become the global reserve currency. So, we'd have a global economy that runs on both limited supply crypto(s) and fiat money to balance out the tight liquidity and inflation that plagues them individually. Certainly, we could look at the history of gold since leaving the gold standard, but in this non gold standard period, gold has not been considered money, which skews the data. On the other hand, Bitcoin models what could happen if we returned to the gold standard without a pegged price.
Ultimately, nobody knows how well pairing a market priced deflationary currency (gold, BTC, etc) with an inflationary fiat currency would work. Would they balance out? So far it seems that BTC has a tendency to eat up liquidity when there is excess and spit it out when it is lacking. The biggest friction to a dual currency system is taxation. But I think it is unlikely we shall see any bold moves to change that.
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