|
In your scheme, you are simply trading assets that are reflected by a liability of the organisation that runs the system, so you are not actually using gold for everyday transactions. It's the same as the difference between using gold itself and a gold-backed currency. As to the question of what is better, my answer to that is two-fold. First of all, history paints a misleading picture of the strength of gold-backed currencies. After all, when things go seriously wrong economically under gold-backed currencies, ending convertibility is usually one of the first things that governments do. Then the final death of the currency happens after it has become a fiat currency, but of course the failure is ultimately one of a gold-backed currency. Generally, whether a currency fails is not related to whether it is fiat or gold-backed anyway (such as with the failure of the Weimar mark, which happened to be fiat money; but both the move away from gold convertibility and the hyperinflation were caused by the First World War). Second, while it is obvious that fiat money can be rejected totally, and gold will always retain at least some minimum value based on its use in jewellery and industrial production, this is not a useful measure to decide which system is better. I claim that the real measure should be: How well does the economy fare, how well does it serve society, under a modern fiat money system vs. older systems. Here, there is a great amount of evidence in favour of modern fiat money arrangements. Compare the cycle of booms and busts in the 19th century with the relative calm of the second half of the 20th century. In fact, that period was so calm that economists even claimed that the business cycle had been tamed! (They called it the Great Moderation.) Of course, this was hubris as the current crisis has demonstrated, but it should give you a taste of just how successful the combination of modern central banking with fiat money has been. (I do not think this calmness was purely due to using fiat money, but I would claim that using fiat money certainly helped. The correlation is obvious, one can debate over the causal link of course.) |