The unreliability of the paper currency (‘fiat’ is the appropriate term) market coupled with the price volatility of crypto-assets is one of the significant factors hindering global confidence in the future of our monetary system today. We begin by looking at the fiat system which is structured towards the uncontrolled printing of paper currency by Central Banks to finance government operations and assign value to our goods/services.
fiat (fi-at) is derived from the Latin term for “let it be done”
Since 1971, when the Federal Reserve no longer backed the US dollar with Gold; the price of the yellow metal has skyrocketed almost 32x, and the dollar has lost over 97% of its value in relation to it. Since then, Gold has become extremely alluring to those wise investors who understand the significance of its enduring value, but distasteful to most who have been manipulated by the financial media. Furthermore, the exponential debt growth occurring with the world’s reserve currency, new macro-economic threats to stability, and rising inflation rates to paper currencies worldwide have created strong distrust in the durability of this system. As a result, while people seek to avoid centralization, and move towards decentralization, we have seen the growing adoption of cryptocurrencies such as Bitcoin and Ethereum as a means to protect their monies. Furthermore, though cryptocurrencies are revolutionary, there lie a few key problems which prevent many of the top coins from becoming the standard of transactional demand.
One of these issues is volatility; since the Bitcoin craze began in mid-2017, the price has risen from approximately $2,000USD to a high of $2,0000USD, and now currently fluctuates at a price of $10,000USD. On a daily basis, the value of one Bitcoin can move a few hundred or thousand dollars in a day. The unpredictability of the cryptocurrency market is the Achilles heel preventing society from accepting it as a stable store of value and not just a speculative investment. In addition, these coins are not backed by anything except computer algorithms and the confidence of those who believe it will one day be used for standard monetary transactional demand.
Therefore, the ideal Money should fulfill these properties:
- Medium of exchange. This allows buyers and sellers to exchange value. It should be fungible and transcends all borders no matter the time or place.
- Stable store of value. The purchasing power of the money owned today should provide the same standard of wealth 10, 20 or 30 years down the road without a penalty.
- Unit of account. Furthermore, it should be a standard unit of measurement for all goods on the market.
As a result, for these reasons and more, the current cryptocurrency market and the fiat system are not viable solutions for sound money.
Over the past 50 years, our society has been led to believe Gold is simply a shiny yellow metal used for nice jewelry. Or if you are in the financial industry, you may hear the pundits commenting “Gold is too volatile”, “it is inefficient money”, or that “our monetary system is too advanced”. All these lies spread to the public has convinced our society that a piece of paper with images of deceased individuals is the way money should exist. But, in reality, this form of paper money has only existed for 50 years, whereas Gold has existed for over 5000. Since 1971 when the United States left the Gold Standard, the price has risen from a measly $38USD/ounce to currently trading at approximately $1200USD/ounce. A key point to recognize is that the underlying value of Gold has not increased, actually, it’s that the dollar has decreased. Arizona Representative Mark Finchem says it best as he describes why Gold should not be taxed as capital gains, “if someone buys a 1 oz. Gold American Eagle Coin selling for $1,300 one year and sells it at a future date for a higher figure, “that person has not experienced a capital gain,” argues Finchem, since it’s the government-issued dollar bills that have dropped in buying power.
Furthermore, during this time, the government has abused its power and issued trillions of dollars’ worth of paper currency to leverage for more uncontrolled spending. They’ve created a monopoly where society must earn in their currency and pay in their currency. The masses have been deceived to think that sound Money is paper, and even worst, simply a number on our screens. Of the roughly 13 trillion dollars that exist, there are 1.5 trillion dollars’ worth of banknotes & coins circulating. Money has effectively become an abstract thought to which people only use it because they hold trust in Central Banks or simply do not understand any better.
They’ve created a monopoly where society must earn in their currency and pay in their currency. The masses have been deceived to think that sound Money is paper, and even worst, simply a number on our screens.
So, why Gold? Well, as mentioned before, Gold in contrast to cryptocurrencies and fiat money has existed as a Money for over 5000 years. Though other commodities have been used as money (such as cattle, oil, food, other precious metals); Gold is the only one that stands the test of time.
Gold in contrast to cryptocurrencies and fiat money has existed as Money for over 5000 years.
Money must be divisible, durable, portable, have a limited supply, be an effective medium of exchange, a store of value and a unit of account. Cattle cannot stand the test of time, oil is not an effective medium of exchange, food is not a unit of account, and other metals either: lack in scarcity, are indivisible, or unable to withstand Mother Nature. Some cryptocurrencies do possess more of these attributes, but they are not an effective store of value. Gold possesses all these characteristics, making it the perfect form of money. Some will claim Gold failed because our monetary system became more complex, but in reality, Gold has never failed — governments went off the Gold standard because they exhausted the ratio of paper money to allocated physical metal. By doing so, the value of fiat currency went into a shameful downward spiral. Like the boat which bobs up and down against the shore; Gold is the shore which never falters, and everything else is the boat which wavers.
Gold is the shore which never falters, and everything else is the boat which wavers.
Finally, while some may say the stock market is a better investment — as seen above, Gold has outperformed the S&P 500 since the beginning of the century. Henceforth, not only is Gold a wise savings tool to preserve purchasing power, but it is also a prudent investment over the long term.
Authors’ note: Please leave a comment below with any questions or arguments. Discussion is the door to knowledge, so let’s learn more together.