Which is better: A Gold backed currency (or) A Fiat currency ???

“What if you were appointed to head the Central Bank of your Nation?
In your first week on the job, what would you do?”

The question was not exactly serious. Neither was the answer.

“We’d call in sick.”

Drought, old age, traffic congestion, meanness, purple drinks, bad taste, poor rap, suburbs & urban sprawl, cancer, government, Rahul Gandhi, restaurant sanitation, present day music, shorts, Facebook games, obesity – there are a lot of things wrong in this world. And most of them are not easily put right.

But there are some problems that could be solved overnight. Economic and financial problems, for example, solve themselves… if you let them. Almost all the macro-money wounds suffered by the modern world are self-inflicted.

Central banks and treasury departments around the world keep shooting themselves in the foot. But rather than stop manipulating the system… they buy another pair of shoes.

If i were miraculously appointed by Head (/Executive Head) of our country to run the Central Bank, my first act would be to put the gun down. I would announce that, henceforth, anyone waiting for the next rate hike would have to wait a long time.

Because we wouldn’t be making any rate hikes… or rate cuts either. Instead, interest rates would have to take care of themselves. Lenders and borrowers would set their own rates.

But what about if banks got into trouble? Ah… we’d take care of that too. We’d point out that the Central/Reserve/Federal Bank would no longer lend to them in an emergency. Our announcement: “To any bank that runs out of money: Drop dead.”

Advice to insolvent banks from the hypothetical Bonner central bank

Then, i would put the entire balance sheet of central bank – the entire money that is in dodgy bonds it bought over the years – up for sale. And we would send layoff notices to the entire staff…telling them to clean out their desks, admonishing them that henceforth they would have to seek honest employment.

Had we the power, we would take one further step: We would declare that Indians (/citizens of whatever country it is), could use whatever currency they wanted, that the Rupee (INR - ₹) (/currency of respective country) would once again be exchangeable for a fixed quantity of gold, and that the Indian Treasury would accept any major currency – including bitcoin – in payment of taxes.

See how easy it would be? All of the heavy lifting could be accomplished before lunchtime on our first Monday on the job. Then we would slip out the Central bank’s Head office … with luck, just before posse caught up to us.

And yet, those simple changes would eliminate most of the money troubles facing the corresponding country. With no further gas coming in, the debt bubble would deflate. Bad investments, bad business, and overpriced assets would all lose air… and disappear.

The currency would be solid again. It would represent real value, not counterfeit wealth. Borrowing would be based on real savings, not just more hollow credits. And – with only scarce capital to work with (rather than an unlimited supply of phony-baloney credit) – investors and entrepreneurs would be careful about what they did with their investments.

They would put capital to work only in projects that increased the real value of Countries assets, rather than those that merely shifted wealth from one place to other.

Admittedly, this would be a lot for the Citizens/people to take in. Most people have no awareness how the currency system works. The credit is all they know. And they still have faith that the big bank heads and governors know what they are doing.

The newspapers, analysts and pundits would howl in alarm. Respectable economists would choke on their indignation. Lynch mobs would form. They would call our program “radical” and “irresponsible,” unaware that today’s system is the most radical, experimental, and irresponsible in history.

Our proposals would take the country back to a traditional and sensible money system.

Would it work?

We don’t know, but we’d like to see someone give it a try.

Let's dismiss the tungsten possibilities for now and presume towards the real question...

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So! Which one is good?? Commodity Money or Fiat Currency??

In my opinion, any economist (either in capitalistic or communistic or mixed economy) is a fool until and unless he accepts the fact that “Currency should be backed by stable, rare (to some extent), ever interest generating thing/commodity”. It can be gold, silver etc. Some say it’s the old and traditional way of financing & economy. I say it’s the most sensible money system.

Some say “It is true that economies expand and their value should increase as new products are created, a gold backed currency prevents asset bubbles as credit is limited based on the available gold or silver to back the printing of new bank notes. ... Instead of being backed solely by gold or silver or any other anchor, Money should only be backed by trust”. Some also say “Money is merely a representation of the perception of value. Instead of being backed solely by gold, money should only be backed by trust. Trust on which the note will be honored by a merchant in exchange for his merchandise or as payment for any debt. Another factor that backs the strength of money is confidence for those who use it. This confidence is imposed by governments through careful regulations preventing markets to succumb into irrationality which damages the value that money is supposed to physically represent. Gold is subject to hoarding that could result in serious shortage. If the economy demands more money to represent the value created, it will result in a shortage and thus a liquidity crisis will emerge”.

I would totally agree to those people who say the above arguments, Since “The great depression (of USA) is partly caused by the shortage of gold that supposed to back the enormous size the economy at that time has become after the first world war. Today USA’s economic growth would never happen if credit is based on the gold available to satisfy it.”

But some other people say “Money has to be anchored to a fixed commodity in order to prevent rampant inflation. Simply printing money without anything backing it is simply dangerous and could destroy the value of people's savings. It is true that economies expand and their value should increase as new products are created, a gold backed currency prevents asset bubbles as credit is limited based on the available gold or silver to back the printing of new bank notes. During an economic expansion, the limited amount of currency floating around the market prevents inflation by increasing how many more goods a single note can buy because it strengthened due to a limited supply of it”.

I support these people too, because “After the United States totally closed the gold window in 1971, the value of the dollar has steadily declined and it now takes more bank notes to buy the same items necessary for daily living”.

Among the 2 kinds of arguments by various economists (which were presented above), I strongly support the latter one (Because most people have no idea how the money system works. The credit currency is all they know. And they still have faith that the big heads at the central banks know what they are doing). As the human ideology and mindset changes with time, space and needs, there are no set parameters to run a huge money flow system. Hence, we’ve to make hard but pragmatic, level-headed decisions to keep the economy under control.

But, Hey…It’s just me with my opinion….People would decide and should decide for themselves what kind of money they want to use… whether to save it… or spend it… and what price to put on it if they wanted to lend it out.

As part of the Bretton Woods Agreement (1944), the Indian rupee was pegged to the US dollar, which itself was backed by gold at that time. This landmark system/arrangement for monetary & exchange rate management ended in 1971, making the Indian rupee a fiat currency.

Most of the currencies now are fiat currencies and there are very few existing currencies backed by commodities. Many countries maintain gold reserves, but they are not used to back the value of their currencies. The stability of the US dollar is maintained by the size and strength of the US economy.

None of the currencies in the world is stable, what most the economies use is fiat currency i.e. they are not backed by gold or silver or any valuable commodity, it is just a piece of paper  and a promise to pay. All money in these systems is FIAT MONEY as it is solely based on faith.

Fiat comes from the latin word "it shall be" the surprising fact is that in the history of world economy NOT A SINGLE FIAT CURRENCY HAS SURVIVED each of them has come down to zero. Is dollar or rupee an exception??? I do not think so!!!

Just because fiat money has nothing to do with physical reserves, it risks becoming worthless due to hyperinflation as people lose faith in it. Fiat money rose to prominence in 1971 after the collapse of The Bretton Woods system when the United States ceased to allow the conversion of the dollar into gold. Before that we could slap any amount to the reserve bank and get that much amount of gold instead. This whole system will come to an end one day.

Precious metals are real money. 5000 year old egyptian’s used gold to trade that time. Gold has the same value that time and now. The fiat currency just come and fades away as time passes but commodity money won’t.

Earlier, RBI (Reserve bank of India) was kinda unreliable, so they had to back currency with gold. Now, they don't take gold bullion.

And now-a-days, as the US currency is unreliable/unstable (Federal Reserve criticism and scams- Google that), no currency in the world is stable. Saving heavily and investing in Fixed deposits will not be practical after 10-15 in India. FDs don't even come under investment category in developed countries.

what is real?

ASSETS

That is what Rothschild's and rockefeller's(chase bank) are doing and have done in the past.

Loaning at low rates for houses ---> and increasing the interest rates ---> people getting bankrupt --> houses forfeited --> huge landmass in name of BIG families in america.

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If you want to know more about money, I strongly recommend this video from "Vsauce":

How Much Money is There on Earth?

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Below Presented is list of Central banks (or) Big banks of World:

Afghanistan: Bank of Afghanistan,
Albania: Bank of Albania,
Algeria: Bank of Algeria,
Argentina: Central Bank of Argentina,
Armenia: Central Bank of Armenia,
Aruba: Central Bank of Aruba,
Australia: Reserve Bank of Australia,
Austria: Austrian National Bank,
Azerbaijan: Central Bank of Azerbaijan Republic,
Bahamas: Central Bank of The Bahamas,
Bahrain: Central Bank of Bahrain,
Bangladesh: Bangladesh Bank,
Barbados: Central Bank of Barbados,
Belarus: National Bank of the Republic of Belarus,
Belgium: National Bank of Belgium,
Belize: Central Bank of Belize,
Benin: Central Bank of West African States (BCEAO),
Bermuda: Bermuda Monetary Authority,
Bhutan: Royal Monetary Authority of Bhutan,
Bolivia: Central Bank of Bolivia,
Bosnia: Central Bank of Bosnia and Herzegovina,
Botswana: Bank of Botswana,
Brazil: Central Bank of Brazil,
Bulgaria: Bulgarian National Bank,
Burkina Faso: Central Bank of West African States (BCEAO),
Burundi: Bank of the Republic of Burundi,
Cambodia: National Bank of Cambodia,
Came Roon: Bank of Central African States,
Canada: Bank of Canada – Banque du Canada,
Cayman Islands: Cayman Islands Monetary Authority,
Central African Republic: Bank of Central African States,
Chad: Bank of Central African States,
Chile: Central Bank of Chile,
China: The People’s Bank of China,
Colombia: Bank of the Republic,
Comoros: Central Bank of Comoros,
Congo: Bank of Central African States,
Costa Rica: Central Bank of Costa Rica,
Côte d’Ivoire: Central Bank of West African States (BCEAO),
Croatia: Croatian National Bank,
Cuba: Central Bank of Cuba,
Cyprus: Central Bank of Cyprus,
Czech Republic: Czech National Bank,
Denmark: National Bank of Denmark,
Dominican Republic: Central Bank of the Dominican Republic,
East Caribbean area: Eastern Caribbean Central Bank,
Ecuador: Central Bank of Ecuador,
Egypt: Central Bank of Egypt,
El Salvador: Central Reserve Bank of El Salvador,
Equatorial Guinea: Bank of Central African States,
Estonia: Bank of Estonia,
Ethiopia: National Bank of Ethiopia,
European Union: European Central Bank
Fiji: Reserve Bank of Fiji
Finland: Bank of Finland
France: Bank of France
Gabon: Bank of Central African States
The Gambia: Central Bank of The Gambia
Georgia: National Bank of Georgia
Germany: Deutsche Bundesbank
Ghana: Bank of Ghana
Greece: Bank of Greece
Guatemala: Bank of Guatemala
Guinea Bissau: Central Bank of West African States (BCEAO)
Guyana: Bank of Guyana
Haiti: Central Bank of Haiti
Honduras: Central Bank of Honduras
Hong Kong: Hong Kong Monetary Authority
Hungary: Magyar Nemzeti Bank
Iceland: Central Bank of Iceland
India: Reserve Bank of India
Indonesia: Bank Indonesia
Iran: The Central Bank of the Islamic Republic of Iran
Iraq: Central Bank of Iraq
Ireland: Central Bank and Financial Services Authority of Ireland
Israel: Bank of Israel
Italy: Bank of Italy
Jamaica: Bank of Jamaica
Japan: Bank of Japan
Jordan: Central Bank of Jordan
Kazakhstan: National Bank of Kazakhstan
Kenya: Central Bank of Kenya
Korea: Bank of Korea
Kuwait: Central Bank of Kuwait
Kyrgyzstan: National Bank of the Kyrgyz Republic
Latvia: Bank of Latvia
Lebanon: Central Bank of Lebanon
Lesotho: Central Bank of Lesotho
Libya: Central Bank of Libya
Uruguay: Central Bank of Uruguay
Lithuania: Bank of Lithuania
Luxembourg: Central Bank of Luxembourg
Macao: Monetary Authority of Macao
Macedonia: National Bank of the Republic of Macedonia
Madagascar: Central Bank of Madagascar
Malawi: Reserve Bank of Malawi
Malaysia: Central Bank of Malaysia
Mali: Central Bank of West African States (BCEAO)
Malta: Central Bank of Malta
Mauritius: Bank of Mauritius
Mexico: Bank of Mexico
Moldova: National Bank of Moldova
Mongolia: Bank of Mongolia
Montenegro: Central Bank of Montenegro
Morocco: Bank of Morocco
Mozambique: Bank of Mozambique
Namibia: Bank of Namibia
Nepal: Central Bank of Nepal
Netherlands: Netherlands Bank
Netherlands Antilles: Bank of the Netherlands Antilles
New Zealand: Reserve Bank of New Zealand
Nicaragua: Central Bank of Nicaragua
Niger: Central Bank of West African States (BCEAO)
Nigeria: Central Bank of Nigeria
Norway: Central Bank of Norway
Oman: Central Bank of Oman
Pakistan: State Bank of Pakistan
Papua New Guinea: Bank of Papua New Guinea
Paraguay: Central Bank of Paraguay
Peru: Central Reserve Bank of Peru
Philip Pines: Bangko Sentral ng Pilipinas
Poland: National Bank of Poland
Portugal: Bank of Portugal
Qatar: Qatar Central Bank
Romania: National Bank of Romania
Russia: Central Bank of Russia
Rwanda: National Bank of Rwanda
San Marino: Central Bank of the Republic of San Marino
Samoa: Central Bank of Samoa
Saudi Arabia: Saudi Arabian Monetary Agency
Senegal: Central Bank of West African States (BCEAO)
Serbia: National Bank of Serbia
Seychelles: Central Bank of Seychelles
Sierra Leone: Bank of Sierra Leone
Singapore: Monetary Authority of Singapore
Slovakia: National Bank of Slovakia
Slovenia: Bank of Slovenia
Solomon Islands: Central Bank of Solomon Islands
South Africa: South African Reserve Bank
Spain: Bank of Spain
Sri Lanka: Central Bank of Sri Lanka
Sudan: Bank of Sudan
Surinam: Central Bank of Suriname
Swaziland: The Central Bank of Swaziland
Sweden: Sveriges Riksbank
Switzerland: Swiss National Bank
Tajikistan: National Bank of Tajikistan
Tanzania: Bank of Tanzania
Thailand: Bank of Thailand
Togo: Central Bank of West African States (BCEAO)
Tonga: National Reserve Bank of Tonga
Trinidad and Tobago: Central Bank of Trinidad and Tobago
Tunisia: Central Bank of Tunisia
Turkey: Central Bank of the Republic of Turkey
Uganda: Bank of Uganda
Ukraine: National Bank of Ukraine
United Arab Emirates: Central Bank of United Arab Emirates
United Kingdom: Bank of England
United States: Federal Reserve, Federal Reserve Bank of New York
Vanuatu: Reserve Bank of Vanuatu
Venezuela: Central Bank of Venezuela
Vietnam: The State Bank of Vietnam
Yemen: Central Bank of Yemen
Zambia: Bank of Zambia
Zimbabwe: Reserve Bank of Zimbabwe.