[uvdiv]

I hope you do not seriously believe that the reason gold is not used for trade is that governments suppress it.

Exchange of gold is subject to capital gains tax; exchange of the US dollar is not. It is clearly suppressed as a currency.

(As would any other attempt at private commodity currency, nothing unique about metals).

The fact is that using gold is actually extremely impractical compared to modern forms of payment. [...] However, once such fiat money systems do exist, they are simply better and there is no reason left to use gold as a medium of exchange.

I do not follow your reasoning at all. Are you perhaps confusing paper money (exchange of documents certifying ownership of wealth instead of physical goods, as a logistic convenience), with fiat money (ability of a state actor to create money and force its creditors to accept it as payment of debt, as a variation of its power to impose taxes)?

There's nothing inconsistent between gold and paper money -- in fact the US dollar was at one point both at the same time, paper bills backed by gold. You have a dollar bill, you have gold; you want it in your physical possession, you trade in your dollar bill and the US redeems your gold. But for convenience you trade in paper bills.

Pics:

http://en.wikipedia.org/wiki/File:US_$20_1905_Gold_Certifica...

http://en.wikipedia.org/wiki/Gold_certificate

[Klinky]

You have a dollar bill, you have gold; you want it in your physical possession, you trade in your dollar bill and the US redeems your gold. But for convenience you trade in paper bills.

How is that inherently better than fiat money? You are essentially trusting that the government will provide you with the gold on demand. The government could overprint & not actually have enough in reserves to cover all gold requests.

Additionally silver/gold certificates were redeemable for silver or gold dollars. The world gold market started making these coins worth more than the face value. You started to get speculators who would cash in & then sell the gold for more than the currency was worth. This also happened to Britain with their gold standard. Not to mention the overhead required to maintain & store large volumes of gold as well as punching out expensive gold coins.

I can see the nice concept of having a currency independent of government, but when you boil it down, money is all about trust. Even if we were on a world gold standard we would have to have faith that gold will keep a stable value & that other players in the market are being truthful about their reserves.

[drags]

On the GP's point, isn't a gold certificate a debt instrument? If you use a gold certificate for convenience, then you are introducing counterparty risk.

Most people are willing to pay a few cents on the dollar (whether that rears its head as actual risk of theft, risk of default or risk of inflation, or as insurance against those possibilities) in order to be able to trade things with other people.

The modern economy is very good about keeping its costs stable and low, while steadily increasing the speed and ease with which we complete transactions. I'd say that's a pretty good thing.

[nhaehnle]

Yes, you are right that I was looking at gold vs. fiat money without considering gold-backed paper money. I was in a biased frame of mind because the GGP was saying that with gold, there is no corresponding liability. With paper money you have such a corresponding liability, whether gold-backed or not.

About the US tax system, which I don't know too well: what about exchange of foreign currencies? Are they subject to capital gains or some other form of tax? Does the capital gains tax actually apply if you use gold for payment, and not just if you sell the gold in exchange for US$?