[tastyfreeze]

Partially gold backed reduces counter-party risk. Fully gold backed, and exchangeable, eliminates counter-party risk.

China appears to be attempting to reproduce what the USD was before it was free floating.

USD is currently backed by debt and nominally military might. If the US defaults then all of the US bonds held by foreign banks become worthless. That is an enormous risk which is why countries have been divesting from US bonds. If USD was still gold, as it was before 1913, if you hold your money it cannot be made worthless by a third party. After 1913 USD became gold backed bills with partial reserve. It is why USD became the global reserve currency. But, reserve requirements were reduced and more paper was produced. In 1971 Nixon removed the convertibility of paper bills to gold metal effectively stealing the gold of any nation that asked the US to hold it.

One of my favorite bits of currency trivia is that a $20 double gold eagle coin used in circulation prior to 1933 had a gold content of 0.9675 troy ounces. Twenty dollars in your hand was literally nearly an ounce of gold.

[PaulDavisThe1st]

This simplistic explanation seems to elide the very point it makes ... a gold backed currency becoming a non-gold backed currency was done via a political decision making process, just as any decision to default on US national debt would be.

You seem to suggest that people should worry about a default claiming if we had still had a gold backed currency the risk would go away ... "if you hold your money it cannot be made worthless by a third party" ... but it can be made worthless by a government any time that government chooses.

The government (having defaulted on gold-backed debt) could simply refuse to convert the paper of the debt to gold (sure, that would be bad, but hey, they've already chosen to default, so not much worse ...)

[attila-lendvai]

the timeframe of losing the gold backing is typically measured in decades, while reserve currencies are used in a day-to-day basis.

[PaulDavisThe1st]

it took decades when the US did it. there's no inherent reason for that.

[tastyfreeze]

Oh no! You have found the fatal flaw of using paper currency backed by anything. Before 1913 money was gold and silver. Not paper bills backed by those metals.

Many people doubt that returning to gold and silver coinage is possible. Going to gold backed currency is a step in the right direction.

A full reserve requirement might work for paper currency. But the only way the plebs that are stuck with paper can truly secure their wealth is to use metal the same as countries do.

[PaulDavisThe1st]

Congrats on missing my point.

  1. old situation: currency backed by full (gold) reserve
  2. actual political decision: currency no longer backed by full reserve
  3. result: currency no longer backed by full reserve

  1. possible political decision: return to currency backed by full (gold) reserve
  2. possible political decision: currency no longer backed by full reserve
  3. result: currency no longer backed by full reserve

To whatever extent government could return a full-reserve backed currency, government can move away from that again. Thus, there's no builtin security for anyone in a return to a full reserve backed currency.

If no government in the history of the world had ever done this, then arguing for a full-reserve backed currency might have a bit more weight. But they have, and it really has done.

[tastyfreeze]

Your first point is wrong. Before 1913 gold and silver coins were the money in peoples pockets. Government produced the coins of known weight and purity. After 1913 paper bills were produced with partial reserve. The US has never had a full reserve paper currency. Step one of going to gold backed paper always comes with printing more paper than there is gold. Wanting to spend more money than they have is the reason every time a government debases its money.

Regardless, I get your point that political decisions ruined it. It is clear that government cannot be trusted to maintain a constant unit of measure that money should be. So, would you agree to an amendment to separate economy and state? Require government to produce coins of known weight and purity and that is it. If they want more money to spend they will have to extract it as taxes.

[PaulDavisThe1st]

> So, would you agree to an amendment to separate economy and state?

No.