Why doesn't the world have one currency?

[shanek]

So they give the dollars to other Indians. That doesn't answer my question. What do these Indians do with the dollars?

Mostly give them to other Indians. They don't have to return to the American economy like they do now.

That's simply an argumentum ad populum: "people in Ithaca think that separate currencies stop capital flight, therefore it does". Sorry, not much of an argument.

Then I'd like for you to explain what it means for the value of a dollar to be backed by gold, if a dollar can be redeemed for only a small portion of that value. According to that logic, dollars are already backed by gold. Go to any bank in the nation and ask whether you can turn in a thousand dollars in exchange for a gram of gold. I'm sure they'll agree.

Try it and see. The only way you can get gold for your dollars now is in the commodities market, where the price of gold fluctuates. FDR actually made what you're saying illegal in 1933.

What you are proposing is a completely vapid meaning of "backed" by gold. Only part of the value would be backed by gold, and on top of that, that portion wouldn't even be guaranteed.

The value of the dollar would be defined as a certain weight of gold, and that would be guaranteed. You're not reading.

The whole point of being backed by gold is that one can turn in money at any time for gold. If the formula is total gold/money needed, then any inflation would cause the "money needed" portion of the equation to go up,

There wouldn't be inflation! We didn't have inflation in this country as long as the dollar was tied to a specific weight of gold. Abraham Lincoln used a dollar that had the same value as the one George Washington used.

Please learn what you're talking about.

 

[shanek]

I think e-Gold is more of a Gold-backed-currency than Gold itself.

Nope. E-Gold is traded by weight.

 

[bjornart]

Nope. E-Gold is traded by weight.

The e-gold people themselves seem to disagree with you:

http://www.e-gold.com/unsecure/qanda.html

e-gold is an electronic currency

AUG is an abbreviation for the currency unit "grams of gold"

 

[Leif Roar]

Of course. There isn't some magic number that says a dollar must be equal to a certain amount of gold. Take how much gold you have, take how much money you want in circulation, divide.

Then deal with the problems that arise because a) gold becomes far too expensive to use for anything other than currency (Gold is actually used for stuff besides jewelry, after all,) b) people who have a few gold rings lying around are suddenly made much richer than before (with the reciprocal effect that people who do not own any gold becomes much poorer,) c) the higher value of gold and future technologies makes it profitable to extract gold from seawater, and the currency is devalued by a massive influx of new gold (re the collapse of the Spanish economy because of the imported gold from South America.)

 

[shanek]

The e-gold people themselves seem to disagree with you:

http://www.e-gold.com/unsecure/qanda.html

Ahem...

e-gold is integrated into an account based payment system that empowers people to use gold as money. Specifically, the e-gold payment system enables people to Spend specified weights of gold to other e-gold accounts. Only the ownership changes - the gold in the treasury grade vault stays put.

e-gold is accounted by weight of metal, not US$ or any other national currency unit.

What about this do you think contradicts what I said?

 

[shanek]

Then deal with the problems that arise because

of all of your misconceptions that aren't really problems:

a) gold becomes far too expensive to use for anything other than currency (Gold is actually used for stuff besides jewelry, after all,)

Nothing whatsoever to do with it. You can still purchase gold by weight at the market value; it's a completely different thing entirely.

b) people who have a few gold rings lying around are suddenly made much richer than before

No, they aren't. They still have the value of that gold at whatever price it's currently demanding. The gold in their rings is not used to back up the currency. Only gold owned and stored by the Treasury.

(with the reciprocal effect that people who do not own any gold becomes much poorer,)

Not only false but ridiculous. They have the same amount of money as they did before.

c) the higher value of gold

still doesn't have anything whatsoever to do with what gold is being used to back up the currency.

and future technologies makes it profitable to extract gold from seawater, and the currency is devalued by a massive influx of new gold (re the collapse of the Spanish economy because of the imported gold from South America.)

Geez, how many times to I have to debunk this crap? This problem was due to them fixing the exchange rate of their currency, not of finding the new gold.

 

[Leif Roar]

There wouldn't be inflation! We didn't have inflation in this country as long as the dollar was tied to a specific weight of gold. Abraham Lincoln used a dollar that had the same value as the one George Washington used.

But did it have the same worth? Could Lincoln purchase just as much for his one dollar as George Washington was able to? The price of bread didn't change at all? Neither the price of land, milk, butter or beer?

 

[Leif Roar]

Geez, how many times to I have to debunk this crap? This problem was due to them fixing the exchange rate of their currency, not of finding the new gold.

Shanek, a gold standard is by definition a system where the currency is completely convertible to gold. The point of the gold standard is that people trust the value of their coins and bank-notes because they can at any time go to a bank and convert their money to the same amount of gold (and, of course, they have to be able to convert this gold back into money as well - otherwise they can't actually convert their money to gold.) Anything else is not a gold standard.

 

[shanek]

But did it have the same worth? Could Lincoln purchase just as much for his one dollar as George Washington was able to? The price of bread didn't change at all? Neither the price of land, milk, butter or beer?

That's absolutely correct! The price of some goods fluctuated, and many actually got cheaper because of technological innovations (don't confuse that with deflation), but the value of his dollar, the worth it had, in real terms, was the same.

Shanek, a gold standard is by definition a system where the currency is completely convertible to gold.

It's one where each unit of currency is tied to a specific weight of gold. When the currency is redeemed for the gold, it is taken out of circulation. That's not the same as purchasing gold on the commodities market, as I keep pointing out.

 

[Leif Roar]

It's one where each unit of currency is tied to a specific weight of gold. When the currency is redeemed for the gold, it is taken out of circulation. That's not the same as purchasing gold on the commodities market, as I keep pointing out.

Unless the amount of gold you get from exchanging your currency to gold is roughly equal to the amount of gold you get from using the same amount of currency to buy gold on the commodities market, there is no reason to trust the currency. The point of a gold standard currency is that people can trust it because it is interchangeable with gold - you can get the same amount of goods for 10 Gold Ounces bills as you can get for ten ounces of real gold; and you know you can always get that amount of goods because you can go to the bank and convert your bills into the ten ounces of gold.

You can not operate with one "currency value" for gold and one "commodities market" value, because then there is no reason to trust the currency. You can not set aside one million tons of gold to back up your currency, and then treat it as different from other gold - then you're not having a gold standard; you're just got one million tons of gold in a vault somewhere, that can not be used for anything else but paying for goods (as its "currency value" will necessarily be greater than it's "commodites market" value.) You will then have acomplished the feat of having a currency with gold used as money (with a further level of money that is used to represent the gold you use to represent value) that is not itself backed by gold.

 

[shanek]

Unless the amount of gold you get from exchanging your currency to gold is roughly equal to the amount of gold you get from using the same amount of currency to buy gold on the commodities market, there is no reason to trust the currency. The point of a gold standard currency is that people can trust it because it is interchangeable with gold - you can get the same amount of goods for 10 Gold Ounces bills as you can get for ten ounces of real gold; and you know you can always get that amount of goods because you can go to the bank and convert your bills into the ten ounces of gold.

You can not operate with one "currency value" for gold and one "commodities market" value, because then there is no reason to trust the currency. You can not set aside one million tons of gold to back up your currency, and then treat it as different from other gold - then you're not having a gold standard; you're just got one million tons of gold in a vault somewhere, that can not be used for anything else but paying for goods (as its "currency value" will necessarily be greater than it's "commodites market" value.) You will then have acomplished the feat of having a currency with gold used as money (with a further level of money that is used to represent the gold you use to represent value) that is not itself backed by gold.

You just show your ignorance more and more with every post. You just don't see how redeeming the certificate takes it out of circulation. You just don't see how many people doing that would both increase the value of the currency (since there is now a lower supply of the currency) and decrease the value of the gold in the commodities market (since there is now a larger supply). You just don't see how the gold backing the currency being less than the price of gold on the commodities market would be an incentive for people to use the gold to trade for new currency.

Think about it for more than a second and see the balancing effect that the gold standard has on the currency, and how it keeps the currency at the real value of gold.

 

[Leif Roar]

You just show your ignorance more and more with every post. You just don't see how redeeming the certificate takes it out of circulation. You just don't see how many people doing that would both increase the value of the currency (since there is now a lower supply of the currency) and decrease the value of the gold in the commodities market (since there is now a larger supply).

What makes you say that I don't see that? How does what I've said conflict with this?

You just don't see how the gold backing the currency being less than the price of gold on the commodities market would be an incentive for people to use the gold to trade for new currency.

Of course I see that; that's why I'm saying that the currency value of the gold will have to be roughly the same as the commodities market value of gold or else the currency will collapse. That, in turn, means that you can not treat the value of gold in rings and jewelry, that used for engineering purposes or that mined or produced from sea-water different from the value of the gold used to back the currency.

Think about it for more than a second and see the balancing effect that the gold standard has on the currency, and how it keeps the currency at the real value of gold.

Except that the value of gold is not indepentend of its use as backing of the currency. If you want to make a world-wide currency backed in gold, you have to value the gold by the total amount of capital in the world, divided by the amount of available gold in the world. I can not see how this will not increase the value of gold dramatically; which will cause problems with the cost of gold as an engineering material, the redistribution of wealth to people who happen to own gold prior to the introduction of the standard (necessarily from the people who does not own gold) and the potential problem of devaluation if it ever becomes profitable to mine gold from sea-water, and inflation whenever the influx of new gold from mining fails to keep up with the growth of the world's economy.

 

[bjornart]

Ahem...

What about this do you think contradicts what I said?

Okay, let me quote the whole paragraph then:

e-gold is an electronic currency, issued by e-gold Ltd., a Nevis corporation, 100% backed at all times by gold bullion in allocated storage.

How is this different from a gold backed currency, which you've said it isn't?

Calling the currency 'grams of gold' and having a one to one relation between 'grams of gold' in circulation and grams of gold in storage doesn't make it less of a gold backed currency.

 

[shanek]

What makes you say that I don't see that? How does what I've said conflict with this?

You said there would be no reason to trust the currency if this happens, did you not?

Of course I see that; that's why I'm saying that the currency value of the gold will have to be roughly the same as the commodities market value of gold or else the currency will collapse.

They'll be kept in balance by market forces; that's not the sam ething.

That, in turn, means that you can not treat the value of gold in rings and jewelry, that used for engineering purposes or that mined or produced from sea-water different from the value of the gold used to back the currency.

No, not at all, because they're not added into the gold that's being used to back up the currency.

Except that the value of gold is not indepentend of its use as backing of the currency.

The value of the gold is what gives the currency its value.

If you want to make a world-wide currency backed in gold,

Woah, wait just a minute—I never said anything about world-wide. If you recall, I've been arguing against a world-wide currency in this thread. A world-wide currency based on gold probably would have some of the problems you're mentioning.

 

[shanek]

How is this different from a gold backed currency, which you've said it isn't?

The gold itself is the currency. You're directly trading weights of gold. The post of mine you responded to was my claim that e-Gold is traded by a certain weight of gold.

 

[Leif Roar]

You said there would be no reason to trust the currency if this happens, did you not?

No, I said that there would be no reason to trust the currency if the "currency gold" was valued differently from the "non-currency gold."

They'll be kept in balance by market forces; that's not the sam ething.

Not the same thing as what? Are you disagreeing with my statement that "he currency value of the gold will have to be roughly the same as the commodities market value of gold or else the currency will collapse."?

No, not at all, because they're not added into the gold that's being used to back up the currency.

No, but the value of this gold, as all other gold, will be affected by the use of gold as currency back-up. In other words, if all currencies were to be backed by gold, this gold would increase dramatically in value.

The value of the gold is what gives the currency its value.

Woah, wait just a minute—I never said anything about world-wide.[/B]

Well, considering how you said "Gold is still the #2 form of money in the world, next to the dollar. I don't know why the economically ignorant still insist there'd be gloom-and-doom if we went back to using gold as money," in a thread called Why doesn't the world have one currency, I think it's reasonable to assume that you meant that all currencies should be on a gold standard - which for the problems of a gold-standard would be the same as a single, world-wide currency backed on gold.

If you recall, I've been arguing against a world-wide currency in this thread. A world-wide currency based on gold probably would have some of the problems you're mentioning.

I would believe these problems would come into play in any case where gold-standard currencies covered a large enough economic region.

 

[bjornart]

The gold itself is the currency. You're directly trading weights of gold. The post of mine you responded to was my claim that e-Gold is traded by a certain weight of gold.

Actually I responded to the post where you said that it wasn't a gold backed currency, and (unless you just threw that in for kicks) that this was because it uses grams of gold as the unit of exchange.

This doesn't change the fact that e-gold calls it a gold backed currency, and that one is just moving numbers from one account to another, numbers that e-gold promise are backed by gold in storage with various firms. But never mind that, it's merely a question of definition. If you want to draw a distinction between this and banknotes saying "redeemable for such and such value in gold" (or electronic representations of such) very well. I'm more curious about how much money you plan to have in circulation in USDs, and how you plan to aquire the gold necessary to back it.

Here are some numbers for starters:

Total world gold stocks private and government in metric tons (according to usgs 2004)
123,000

Current US reserves in metric tons (according to usgs 2004)
8,140

Current commodities gold price in USD/g (according to www.e-gold.com)
13.46

Current volume of dollars in circulation (according to http://www.federalreserve.gov/boarddocs/speeches/2004/20040426/default.htm)
700,000,000,000

Tons of gold needed to back current volume of dollars at current commodity price
51,994

So anyone wanting to replace the dollar has to buy up 42% of the entire worlds stock of gold (or just 35% if its the US government).

How is this to be accomplished?

 

[shanek]

No, no, no, wrong, wrong, wrong. You people just don't read.

So the government has 8,140 metric tonnes of gold. It's actually more than that because if memory serves that doesn't include the amount held by the Federal Reserve, but anyway, let's go with 8,140 metric tonnes.

$700 billion in circulation. The current commodity price has nothing to do with this.

So, we dissolve the Fed (and in the process gain its gold reserves, but again, we're not going to count that here) and start, through attrition, replacing the Federal Reserve dollars with gold certificates issued by the Treasury. If we want there to be $700 billion floating around the economy, and if we don't want to purchase any more gold to make that happen, then you do simple division to find your base.

Murray Rothbard detailed a plan to do exactly this in his book The Case Against the Fed. It's a good and surprisingly quick read. At the time he wrote the book, this would have meant each dollar would have been redeemable for .02 grams of gold.

 

[Leif Roar]

No, no, no, wrong, wrong, wrong. You people just don't read.

So the government has 8,140 metric tonnes of gold. It's actually more than that because if memory serves that doesn't include the amount held by the Federal Reserve, but anyway, let's go with 8,140 metric tonnes.

$700 billion in circulation. The current commodity price has nothing to do with this.

Ahem. Remember this line? "The value of the gold is what gives the currency its value." Are you saying that the commodite price of gold has no connection to the value of gold?

 

[shanek]

Ahem. Remember this line? "The value of the gold is what gives the currency its value." Are you saying that the commodite price of gold has no connection to the value of gold?

Right. The commodity price is arbitrary. The real value of the gold is pretty much constant. The commodity price is a nominal, not real, value.