Issue 368 Backing Money without Gold? June 30, 2014

You have all heard of the arguments to go back to the Gold Standard. But you probably do not know what that actually means or that there is an alternative to the Gold Standard as well.  Let's discuss.

Backing Money:  When they say they want to go back to the Gold Standard, they mean financially backing the currency by giving it an almost one for one value with gold.  The most simplistic way to describe how this works is that a government cannot print more money than the amount of gold in the government’s possession. This keeps the value of the currency from decreasing and thus prevents inflation.  At one point the United States looked at the Silver Standard which would have allowed the United States to print more money to pay its debts (along with people already indebted as more money at less value is much more easily earned to pay off debts in the first place).  As such, the United States does not have to rely solely on the Gold Standard.

Other backers:  Anything that holds value can be used to back money so long as it can be monetized. So this means coal, platinum, uranium, and other valuable items can be used to back the dollar or any currency for that matter.  Interestingly enough, Omar Qaddafi the now dead dictator of Libya wanted to create an international currency for Africa backed by its oil resources.  This meant that if a country wanted to pay back their debts to Libya or any other country using this African currency, they would be forced to possibly pay it back in barrels worth of oil. As such, depending on what you use to back your money, you can control the world economy.  The reason why Gold is typically used is because there is such a limited supply that its value can only go up.  It has been actually said on the show "Americas Book of Secretes" on History Channel that the total amount of Gold in the world is equivalent to a regulation size tennis court and about three stories tall.  Thus you can see why there is a search for alternatives to Gold. 

Conclusion:  We may need an alternative to Gold to get us out of the financial distress our country is in.  So the question is, is it actually worth it?  I think so, as the floating dollar we have now is too unstable for it to survive.