> Nothing much would happen because: > > 1. Paper money will always exist because they are needed as a representation > of a country's economic value. Just as stock goes up or down according to > the trust of people in a company, so is paper money going up or down > according to the interests of investors (and of governments) in a country's > economy.
The analoge of firm share price and national currency value is a load of tripe. There might be some correspondence between currency value and economic prospects, but that does not make centrally planned nationalised currencies a good idea. Far from it. It just represents noise in the crucial process of economic calculation. > > If gold would be the representation of economic value (everything would be > priced in gold), there would be a problem because various countries would > value differently the gram of gold... according the interests of investors > (and of governments) in that country's economy (as in USA, EU, and... > Somalia). Since that is not possible, it means that the price (in gold) of > goods would constantly vary as the economic value constantly varies (and > with this, increased extremes of economic value: severe crashes and > luxurious wealth). Countries do not value things. Individuals and markets value things. Factor prices (i.e. wages and property rents) vary over geographic space and the efficient allocation of capital and labour over land/geographical area. This process is most efficient where there is a common money commodity base, and where money, labour, capital and products are free to move. This makes for more liquid and elastic markets for factors and products and so makes prices more stable and vacancy/unemployment rates lower and less volitile. It also reduces the variability of factor and product prices over geographic area (even ground rents). > > 2. If gold would become extremely popular and people would use DGCs on a > mass > scale, it wouldn't hurt paper money because the goods are priced in paper > money. People would always have to exchange (even just virtually, since they > don't actually get the paper money in their hand) DGCs for paper money to > buy goods. So, paper money remains unhurt. Individuals can value goods in whatever metrics they want. The form of payment media has little to do with the unit of value -- the same unit of payment can support multiple forms of payment. > > If merchants would use DGCs on a mass scale, because of the low (and fixed) > amount of gold available in the world, one would think gold's price > (relative to paper money) would go up. If merchants would price their goods > in paper money, you would have the above case, but, if merchants would sell > goods for gold and there would be no paper money relative to which gold > could go up, it would mean gold will have the same value (because it can > relate to anything) and people wouldn't be able to buy much with their > little amount of gold. Hence, gold would be abandoned as currency. There is no long term relationship between the demand for the stock of a commodity and the price of the commodity. Demand and supply in markets are flow functions of prices, not stock functions of prices. Its the interest rate, not the price, that regulates the stocks of commodities (see http://www.geocities.com/davidhillary/goldbanking/chapter1). > > 3. If gold wouldn't have paper money to relate to, it would have to relate > to the goods sold for gold. Again, you have the case in section 1: the > constant variation of the price (in gold) of goods. The more gold is used as money, the more fiat currencies are priced in gold. That is both for the exchange rate and the interest rate differential. I would suspect that if gold has a monetary revival, fiat currency central banks will peg their currencies to gold, and determine their monetary policy by establishing a rate of change of the log of the price of currency in terms of gold. For example a 1% p.a. depreciation rate would lead to a 1% p.a. interest rate premium on the currency. So, to tighten monetary policy the central bank would increase the rate of depreciation, elevating the interest rate. The peg could also be subject to ad hoc devaluations/revaluations, however, to the extent that they were anticipated they would have the opposite effect to the one desired. From this point the pressure to adopt a 'hard peg' (or convertibility) to gold would be great, as the central banks would be seen for what they are: noise-makers, and/or transactors would move their monetary assets into explicit gold denominated deposits and notes, and judge their profits and losses in gold. > > > In conclusion, gold needs paper money so it could be valuable relative to > that. Firstly paper money can be denominated in gold. Secondly, gold, used as money, is used to value goods, and is its price is the inverse of the price of goods. David Hillary --- You are currently subscribed to e-gold-list as: [EMAIL PROTECTED] To unsubscribe send a blank email to [EMAIL PROTECTED] Use e-gold's Secure Randomized Keyboard (SRK) when accessing your e-gold account(s) via the web and shopping cart interfaces to help thwart keystroke loggers and common viruses.
