Did you know in the past, actual gold coins were used as money? Gold has always played a fundamental role in the global monetary system. Gold coins were initially minted by the direction of King Croesus of Lydia around 550 BC which is located in what is now part of modern-day Turkey. This development in currency played a crucial role in the evolution of trade and economic systems by providing a standardised medium of exchange. Thus, people paid for things directly with gold.

In ancient times, Goldsmiths working with gold made them essential in the early development of coinage, they were skilled craftsmen who worked with precious metals. They had the knowledge, skills, and tools necessary to refine gold, shape it into various forms, and create intricate designs. Goldsmiths would have been responsible for taking raw gold and transforming it into standardised coins with specifications set by the King or his counsel. This process would have involved melting the gold, forming it into coin blanks, stamping the coins with specific designs and inscriptions to denote their value and origin, and possibly testing the purity of the gold.

As more businesses and individuals chose to store their gold with the goldsmiths, the receipts they issued gradually began to circulate as a form of money. This was an early form of paper currency backed by real gold in the goldsmith’s vault. Over time, goldsmiths evolved into the first banks. For many years, paper money was linked to gold. Paper money could be exchanged for gold coins. Gold helped to stabilise currencies and control inflation. However, this was a downside for the ever-controlling oppressive power structure as it limited government policies, constraining governments during crises.

Unfortunately, as more people used these gold-backed paper receipts, the goldsmiths realised they could print more receipts than they had gold. The extra receipts could be lent out to earn interest. This was the start of fractional reserve banking, which is a banking system in which banks are required to keep only a fraction of the funds deposited by customers in reserve. Central banks set a reserve requirement, which is the percentage of deposits that banks are required to hold in reserve.

For example, if the reserve requirement is 10%, a bank must keep 10% of its deposits in reserve and can lend out the remaining 90%. This method can be rinsed and repeated to create a deposit multiplier effect where for example a bank receives a $100 deposit with a reserve requirement of 10%, it can lend out $90 of the deposit and then the same borrower may deposit that $90 into another bank, where in turn that bank lends out a portion of that deposit creating a continuous cycle that leads to a larger overall increase in the money supply than the original deposit amounts. Ultimately, the banks create new money by crediting the borrower’s account with the loan amount, so the loan amount is the new money the banks do not have in their reserves.

After World War II, the Bretton Woods system linked global currencies to the U.S. dollar rather than the Gold itself. The dollar was convertible to gold at $35 per ounce. However, under the pressures of high inflation and currency devaluations, the Bretton Woods system broke down. Since encouraging free trade was one of the initial goals of the Bretton Woods system, it was undermined by capital immobility. In 1971, President Nixon officially ended the convertibility of dollars into gold, moving the dollar to a fiat currency with no backing.

While the official link between currencies and gold has been severed, gold remains an important asset for central banks as they hold large gold reserves. Gold remains important as a safe investment during economic crises. It helps to build confidence in currencies and economies. So, gold still plays an important role for central banks today, even if currencies are no longer convertible into gold.

In recent years, central banks around the world have been net buyers of gold. In 2022 alone, central banks purchased a record 1,136 tonnes of gold. Relevant reasons are that Gold provides diversification from currency and credit risks. Gold can be used as a reserve asset during times of crisis, unlike paper assets. Large gold reserves signify economic strength and independence. The price of gold and the strength of currencies are often connected. And last but not least geopolitical tensions and uncertainty tend to increase gold’s appeal as a safe haven.

Conclusion

It could be viewed as contradictory or an evident manipulative condescending disrespect to the people who trusted banks for the simple fact that central banks no longer link money to gold. But they continue to build up huge gold reserves. This is because Gold is still seen as a safe investment during crises, for them, not for you. Its physical nature holds value when currencies and assets could crash. So, it provides insurance. Large gold reserves also give central banks status and influence over the economy. Though not officially backing money today, gold still supports central banking power. So even without the gold standard, central banks remain connected to gold. They use it for financial security and global sway. Gold remains woven into the fabric of central banking.

It can also be debatable whether the modern relationship between central banks and gold is intentionally scam-like or not. On one hand, the lack of a gold-backed currency does sever the direct link between money and tangible assets, opening the door for uncontrolled money printing and inflation. However, on the other hand, linking currencies to gold can be restrictive and arguably an outdated system that is ill-suited for modern finance whilst fiat currencies allow for monetary policies that can stimulate growth and employment.

Ultimately though, without gold-backing paper currencies, it is a monetary illusion, just digits on a computer screen of funds that don’t exist. The people gave the banks power and the banks exploited them by charging aggressive excessive interest for example leaving many families punished and homeless when they defaulted on their mortgage re-payments. But the irony is, technically the banks never had that money to loan them in the first place, it was fabricated with the criminally organised intention to make even more money by duping the people who traded their gold for paper money taking advantage of their tradeable exchanges who were informed once up on a time that their exchange was backed by gold. Hypothetically speaking, If we all withdrew all our money from the bank at the same time, wouldn’t we cripple the banking system due to fractional reserves?

Final thought, when the banks are in crisis like the Great Depression or the 2007–2008 financial crisis it’s the taxpayers who forcibly bear the burden and bail them out. When a political leader like Khadafi in Libera tries to bring back gold as the main tradeable currency it’s the Western opposition who destroys his public image through propaganda and has him assassinated because he became a political and economic threat to their financial system.

Shouldn’t we be collectively invested in giving people back the power with real valuable assets so we don’t have to be at the mercy of banks and undo some of the treacherous history that plagues us all today?

References

World Gold Council. “Money and Gold”.

https://www.gold.org/history-gold/gold-as-currency — Access 27th Feb 2024.

Study Smarter. “Bimetallic Standard”.

https://www.studysmarter.co.uk/explanations/macroeconomics/international-economics/bimetallic-standard/ Accessed 27th Feb 2024.

International Monetary Fund. “Ending the gold standard”.

https://www.imf.org/en/About/Factsheets/Sheets/2022/Gold-in-the-IMF Accessed 27th Feb 2024.

Scientific Research, an Academic Publisher. “Factors That Have Led to the Collapse of the Bretton Woods System.”

https://www.scirp.org/journal/paperinformation?paperid=87932#:~:text=Capital%20immobility%2C%20in%20turn%2C%20hindered,of%20the%20Bretton%20Woods%20system. Accessed 27th Feb 2024.

The Streets. “Why central banks are buying and selling gold”.

https://www.thestreet.com/finance/why-central-banks-are-buying-and-selling-gold Accessed 27th Feb 2024.

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