Asra Minerals: Unlocking Multi-million Ounce Gold Potential in WA’s Premier
While it fell out of favor for fiat currencies in the middle of the 20th century, the idea that gold could once again underpin the global economy has never disappeared. So what exactly is the gold standard? What is the history the gold standard, and could it be revived again today? We explore this all below.
What is the gold standard?
The gold standard is a monetary system where a currency’s value is pegged directly to gold and the currency can be exchanged for gold at that ratio, giving the currency intrinsic value. For example, a country could set a standard in which $1,000 is equal to 1 ounce of gold, and citizens could then exchange their currency for physical gold.
Some countries have also employed silver standards or double standards, which see a currency backed by either silver or by both gold and silver.
Why did the world establish a gold standard?
Copper, silver, gold and alloys like electrum have been the foundation of trade and currency for thousands of years, and while they each command value among investors and collectors today, their weight is a major problem.
To deal with this, paper money in the form of promissory notes was created, with the earliest uses being little more than IOUs. It wasn’t until seventh century China that trade guilds began to issue receipts-of-deposit that eliminated the need for merchants to carry large quantities of coins for wholesale transactions.
These notes weren’t meant for widespread use, but their development eventually led a group of merchants to create a more formal system in Szechuan in the 10th century. Each was printed using anti-counterfeiting techniques and affixed with a seal from the issuing bank. Whoever held the banknote could have it converted back into metal at any time.
Because these notes were lighter than their metallic counterparts, they became popular among traders along the Silk Road between China and the Middle East. Eventually, the notion of printed money found its way back to Europe via travelers like Marco Polo and William of Rubruck who moved along the route in the 13th century.
However, the concept of paper money didn’t catch on in Europe for another 400 years, when Sweden issued the first banknotes in 1661. These notes were redeemable for quantities of coins from banks, meaning that merchants no longer had to carry large amounts of copper and silver, which were heavy and easy to steal.
Despite initial skepticism, the notes proved to be popular, and the idea spread across the continent. That said, it wasn’t entirely smooth sailing. Over time, issuers realized that not all bank notes would be redeemed, and began to print notes beyond the value of the metal they held in reserve. Sweden’s paper money quickly lost its value, and the country’s government ultimately decided to pay back and withdraw the notes in 1664.
Outside of Sweden, a lack of…
