Metal as money

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Throughout history, various metals, some of which are considered precious today, appear to have been used as a form of currency. The Bretton Woods system, under which all major currencies were theoretically exchangeable for gold, was abolished in 1971.

Other metals to have been used as money include silver, copper, and platinum.

1 Commodity money and coins
2 Representative money
3 Gold standard
4 Digital metal currencies
5 External links

[edit] Commodity money and coins

See also: Commodity money

In daily conversation the term 'money' is used without academic preciseness by distinguishing between money, money substitutes or currency. Money must be a tangible asset while a money substitute may be only a claim on a tangible asset. Either money or a money substitute may circulate as currency. The reason money must be a tangible asset is so that transactions are extinguished (value traded for value). When a money substitute is used as currency the transaction is not extinguished until the money substitute is passed on in another transaction and value is received. Currency is merely a tool that allows humans to engage in the mental calculation of value. Gold is the most reliable currency as evidenced by the price of a barrel of oil which has remained about 3 grams of gold for the past 70 years.

When money substitutes, bills of credit, circulate as currency then payment risk is introduced to transactions. Occasionally, the payment risk becomes completely unmanageable with hyperinflation or other currency crisis like Weimar Germany, Argentina or Zimbabwe. The only similar experience where this happened with gold was when the conquistadors returned to Europe from America with the gold hoards.

Gold has been considered valuable since prehistoric times. While it might originally have been used in barter for its value in ornamentation and rituals, gold and silver became established as a form of commodity money and were first minted by the Lydian king Croesus around 560 BC. For all of recorded history at all times and in all circumstances gold remains money. Thus Gold is the ultimate form of payment. Interestingly, as evidence of its monetary nature gold is the only commodity produced by humans to be hoarded.

Around 500 BC, the touchstone became available, allowing relatively easy detection of forgeries, and in the third century BC, Archimedes invented a method of determining an object's density. Since gold was the densest substance then known, this could be used to verify an object was made of pure gold without destroying it.

[edit] Representative money

Main article: Representative money

Drafts for metal held on account were first issued in the first century BC in Egypt.

In modern times, it was Stockholms Banco that in 1661 first issued banknotes that were intended to be fully redeemable for copper coins; while initially popular, the bank eventually could not redeem all the notes it had printed, and ceased operations in 1664 after a bank run.

National banks later guaranteed the redeemability of representative banknotes put into circulation, though rarely to the extent of having the promised amount of metal on hand for all currency in circulation.

By 1865, however, the system appeared sufficiently stable to create the Latin Monetary Union, establishing a common system for gold and silver coins used in several European countries.

[edit] Gold standard

Main article: Gold standard

After the Bank of England collapsed in 1696 the Queen sought for a solution and commissioned Isaac Newton to solve the currency problem. As a result of his analysis of the situation he developed the gold standard. This was a voluntary system eventually abandoned in 1971 when President Nixon closed the gold window in response redemptions of US$ for gold.

The newly unified German Empire introduced a common currency, the German Goldmark, beginning in 1873; this currency was based on a strict gold standard, with banknotes redeemable for gold coins. Other countries rapidly followed suit, and by 1900 was accepted by all major economies.

[edit] Digital metal currencies

See also: Digital gold currency

In the Information Age a whole new level of currency has developed centered around gold. For example, GoldMoney has created the goldgram. A goldgram in the online GoldMoney database may be transferred between user's accounts and is backed by a gram of gold held in vaults throughout the world that meet the London bullion market (LBMA)standards. The bullion is insured by Lloyd's of London and audited by Deloitte & Touche. As a result, many of the risks to using gold as a currency in daily transaction have been eliminated. While the digital gold currencies have not acquired widespread adoption they are extremely efficient and may become a dominant currency in the future.