The gold lovers were pretty quiet in the 80s and 90s.
I will let you know if I find it…
I think it is quite likely that there is no need for a single reserve currency in a globalizing/globalized world. Countries, like very wealthy individuals, will spread their bets across various economies and stores of value, included USD, CNY, EUR, CHF, JPY and precious metals. Goldbugs often make the argument that gold has been a store of value for a very long time. While true, this overlooks the fact that the world has changed and the international monetary system needs to adapt to those changes.
The same goes for people who cannot imagine a world where there is not one single reserve currency. Relative to gold, there has only been a single reserve currency for a very short time and there is no reason to think there has to be one. The most likely answer is that countries will diversify across multiple currencies as economies around the world grow to a level where they are relatively stable and can be considered a going concern. Compare that to the aftermath of WW2. What country/currency could you be relatively certain would continue to exist? We are simply not in that environment anymore.
Also, we still have not addressed the fact that it is random in the first place to base a currency on gold. The reason why gold is valuable is that other people accept it as a medium of exchange. Hence, it is a circular argument to begin with.
I don’t think it’s that random. It’s a scarce resource with a finite supply. It’s easy to manipulate and never corrodes. Plus, it’s pretty. Actually doesn’t seem like an accident at all.
^^Same with any fiat money.
Agreed. You may as well take any other rare commodity that cannot be artificially produced e.g. other rare metals, as long as people “believe” it’s valuable. I think we are now obsessed with Gold mostly for historic reasons. Of course, gold is not inherently valuable or even pretty but it got that status because it was relatively easy to find, to extract, to process and work with since it is quite soft and occurs in its pure form. The oldest gold artifacts come from 6000BC, long before any alloys have been discovered.
I’d rather have a fiat currency exactly because you can control the supply. Gold is unpredictably e.g. new deposits may be found, and in a crisis the monetary policy options are very limited as well.
huh? Fiat money is a finite resource? Wow the Fred must be spending a lot of time and effort we don’t know about to produce dollars.
This comment makes very little sense and shows a poor understanding of why people favor gold as a currency. Gold is incredibly predictable. Supply has been relatively constant for years, which is amazing considering it should have increased dramatically as the price went up…but it hasn’t. We know with near certainty how much gold will be mined each year, but we have very little idea how much USD will be printed. Sure, it’s controlled by central planners, but is that where you want to put your faith? People like gold for the exact opposite reasons you give. It is predictable where as fiat can be created out of thin air.
I think he was pointing to the comment above mine. We posted at the same time. It doesn’t make any sense otherwise.
Warren Buffett on gold:
- “Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.” 2. “The problem with commodities is that you are betting on what someone else would pay for them in six months. The commodity itself isn’t going to do anything for you….it is an entirely different game to buy a lump of something and hope that somebody else pays you more for that lump two years from now than it is to buy something that you expect to produce income for you over time.” 3. “Gold is a way of going long on fear, and it has been a pretty good way of going long on fear from time to time. But you really have to hope people become more afraid in a year or two years than they are now. And if they become more afraid you make money, if they become less afraid you lose money, but the gold itself doesn’t produce anything." 4. “I will say this about gold. If you took all the gold in the world, it would roughly make a cube 67 feet on a side…Now for that same cube of gold, it would be worth at today’s market prices about $7 trillion – that’s probably about a third of the value of all the stocks in the United States…For $7 trillion…you could have all the farmland in the United States, you could have about seven Exxon Mobils (XOM) and you could have a trillion dollars of walking-around money…And if you offered me the choice of looking at some 67 foot cube of gold and looking at it all day, and you know me touching it and fondling it occasionally…Call me crazy, but I’ll take the farmland and the Exxon Mobils.” 5. “The major asset in this category is gold, currently a huge favorite of investors who fear almost all other assets, especially paper money (of whose value, as noted, they are right to be fearful). Gold, however, has two significant shortcomings, being neither of much use nor procreative. True, gold has some industrial and decorative utility, but the demand for these purposes is both limited and incapable of soaking up new production. Meanwhile, if you own one ounce of gold for an eternity, you will still own one ounce at its end.” 6. “What motivates most gold purchasers is their belief that the ranks of the fearful will grow. During the past decade that belief has proved correct. Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis. As ‘bandwagon’ investors join any party, they create their own truth — for a while." 7. “I have no views as to where it will be, but the one thing I can tell you is it won’t do anything between now and then except look at you. Whereas, you know, Coca-Cola (KO) will be making money, and I think Wells Fargo (WFC) will be making a lot of money and there will be a lot — and it’s a lot — it’s a lot better to have a goose that keeps laying eggs than a goose that just sits there and eats insurance and storage and a few things like that."
You could argue the same about dollar bills (not having much use, you still own a dollar at the end of X number of years holding on to a dollar). Dollars don’t produce anything on their own and don’t have much use except as note paper for taking down numbers and for decorating a stripper’s G-string, but people will still accept them in exchange for stuff, and that’s pretty cool.
The issue is whether gold is a more stable store of value and medium of exchange than a dollar (or other fiat currency).
I agree with STL (edit: that should have been BWYF) that there’s no need for only one country to be the world’s reserve currency, and that we are increasingly moving into a world where there is basically a basket of world currencies (like the IMF SDRs), and that most central banks are going to have reserve assets that are baskets, and those baskets will include gold.
So there will likely be a shift in the proportions of those baskets - how many are in dollars and how many are in gold and other currencies - but that the dollar is unlikely to disappear and be completely or mostly replaced by another currency or even gold, for the reasons I stated in my earlier post.
Always plugging your favorites, I see.
I didn’t read your post and I’m still too lazy to do so, but did you mention petrodollars? Dollar hegemony isn’t going anywhere so long as oil is priced in USD. And, oil will be priced in USD so long as America has the strongest military.
As long as everyone still needs oil, dollars will be the reserve currency and we can lend money at lower rates than otherwise possible.
Ha! Very funny. We agree about four and half times a year.
Edit: Although more recently. Maybe bchad is letting a little ancho-capitalism creep into his liberal views. (Or, sweet jesus, I’m becoming more liberal.)
Except when gold is worth less dollars then gold buys less goods and services. A dollar buys the same amount. So, no, that’s pretty wrongheaded.
Nah, I think said he agreed with you on the “basket of currencies” but that is something that BWYF (yes, I refer to myself in the third person) actually said. I think he just wants to like you so he takes views he agrees with and plugs your name in there.
My apologies, BWYF. My internet connection went down between deciding what to say and actually getting to write it and in the interim, I swapped your names. My mistake. :-/
And - believe it or not - though I’m way more liberal than most posters here, I’m not really that far left in general. In environments where more liberals congregate, I’m often reminding them that price signals and incentives are pretty important and government can’t just mandate that everyone have a wonderful life. I just think that the idea that markets solve all problems when information and resources are highly unevenly distributed is full of problems and they often get glossed over, and someone has to point that out here.
No petrodollar mention, but petrodollars fits with the explanation.
I hear people make a big deal about how oil is priced in dollars, and I know that does mean that, technically, one has to exchange any other currency for dollars to make a purchase, but I’m not really sure that this makes a huge difference, particularly if there are liquid currency markets. I suspect it’s way more important for small oil-poor developing countries than for the Europeans or Russians or Chinese or even Indians. They can make OTC agreements in their own currencies if they want to, even if the USD is used as a reference rate. The use of dollars is more of a hedging mechanism for oil imports to reduce currency risk.
Coincidentally, I just received an interesting reminder in my e-mail this morning, concerning, of all things, gold.
On November 7, 2010, in a thread on investing in gold in a Money and Investing forum I moderate, the OP wrote that in 3 – 5 years the price of gold would triple or quadruple. I put it on my calendar to check in three years; that’s the reminder I got today. (I realize I’m two weeks ahead of schedule, but I feel safe in saying that the next two weeks likely won’t change the conclusion.)
Three years ago, the price of gold was $1,400/oz.; today it’s $1,350.
Three years ago, the price of silver was $26.86/oz.; today it’s $22.78.
I haven’t confirmed this with my calculator or with Excel, but I believe that neither price has tripled or quadrupled. Or anything close. In fact, my cursory examination leads me to believe that the price for each has, in fact, declined.
Here’s the original thread, for your amusement. (Alas, some of the quotations were bollixed when they migrated to a new server, but you don’t lose much).