Quote: (09-12-2015 09:30 AM)Spindis Wrote:
I don't know what you mean by that Phoenix. There are so many wonky ideas that have popped up over the years that just confuse the issue. The way you tell if you are on a gold standard is if the currency is managed at a specific ratio with gold. The way you do this is by controlling supply in order to set that value. Anything else you might do is unnecessary, you don't even need to own an ounce of gold.
I think you have a government-centered idea of a gold standard. It doesn't have to have anything to do with a government, or 'someone controlling something'. Your idea of value appears upside down.
A gold standard simply means 'our money is gold', or 'our currency is gold'. Gold is a soft yellowish metal that is dug out of the ground. People melt it and cast it into little discs called 'coins'. Those coins are the currency.
Because a larger coin has more gold. It is worth more. More of a valuable thing is better than less. For this reason, people want to know exactly how much gold they are getting in a transaction. So they standardize coins into specific weights.
https://en.wikipedia.org/wiki/Guinea_%28British_coin%29
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In 1717, Great Britain adopted the gold standard, at a rate of one guinea to 129.438 grains (8.38 g) of crown gold, which was 22 carat gold.
In that example, the term 'guinea' simply allows the trader to know how much gold he is getting. It is effectively a unit of weight, like 'ounce' or 'gram' is.
After these coins, people found it more convenient just to lend them to a bank and receive a promissory note in exchange. These were called banknotes. A customer could then get his gold coin paid back to him if he redeemed the banknote. Usually he never had a need for an actual gold coin, so he just used banknotes. Exchanging gold for payment then became mostly the domain of the banks themselves, settling debts with each other.
A return to a free-banking gold standard would work as follows:
- A right-wing libertarian regime gains power by magic
- It calculates the size of the country's monetary base
- It starts stockpiling gold at the market rate to match that, selling forex reserves in the process
- It announces "our dollar is hereby defined as: X grams of gold"
- It opens a gold window at its central bank, where people can redeem dollar notes for the equivalent weight in gold
- It re-legalizes banks printing their own banknotes
- Banks then start redeeming their dollar accounts at the central bank for gold
- It stops the printing of central bank banknotes
- After a while, it announces its intention to dispose of the central bank. People are given a deadline by which they can redeem their central bank notes for gold.
- After that deadline passes, the central bank is disposed of, and former banknotes cease to be usable.