Gold is the most precious metal. Learn about the history of money and currencies and their relationship to gold

 

In our time, no one believes that metals "mature" in the earth, and that gold represents the last stage of natural ripeness. That maturity that alchemists were trying to achieve in an artificial way. However, this belief illustrates the attraction that this yellow metal has been exerting on man, throughout time.

Gold Information

Gold is a chemical element with symbol Au and atomic number 79, and is therefore one of the few elements with a high atomic number that are naturally available at the same time. It is found in nature in the form of a reddish-yellow metal, and its high density, makes it ductile and malleable, and is classified among the noble metals.

Gold Magic

Certainly, this attraction finds its explanation in the amazing properties of gold. It is highly extendable and has remarkable extendability. However, its value is not due to these properties. Indeed, it is its beauty and rarity that have made it, since ancient times, the most expressive symbol of wealth. Today, its role as a monetary criterion no longer exists, but its prestige remains great in the eyes of the public.

From barter to metal use

Prehistoric man—whose exchanges were more important than generally believed—practiced barter. When a tribe hunted well, it willingly exchanged part of its game, for example, for pottery made by a neighbouring tribe. However, this method had many disadvantages. How, for example, can a chicken trade for a blister, when the value of the chicken is completely different from that of an ox? Hence the necessity of having divisible things, and recognizing them as of equal value. That is, what can be called, in the language of the times, a means of performance.

In order for the means of performance to be accepted everywhere, it must indeed meet the following five requirements:

• Not be perishable.
• To be divisible in order to allow the acquisition of low-priced items.
• To represent a large value despite its small size, so that its circulation is affordable.
• Its value should be proportional to its weight to avoid each subjective element in the estimate.
• And that, in the end, it should be accepted by all.

Natural objects that respond best to all these requirements are precious metals, such as gold and silver. After man realized that the rarer metals were the ones most capable of facilitating exchanges, he had just thought about the necessity of forming gold into bullion. Since gold, unfortunately, is a hammer metal, a solid metal had to be added to it to make a more resistant alloy. At the time, people had to check how much gold was in each transaction.

But how is this verification?

This form was solved by making alloys of similar weight and proportion of gold, and by providing them with a guarantee. To be accepted by all, this guarantee—the stamp—must come from the person who has the greatest form of power and reverence, the monarch himself. Then the transition was made to the coin which is, in fact, nothing but an alloy of small size, easy to handle.

Lest we deviate from the truth, we must say that the first pieces, rough, poorly designed, with their square or semi-circular shapes, and with their varying thicknesses, did not inspire absolute confidence. Each one lent a quantity of metal, before handing it over for performance. Decisive progress occurred when the minting made it possible to decorate both sides of the piece with motifs that were intended more for protection than decoration.

From the piece of gold to the bank note

For a long time, gold, silver, and bronze were the only means of performance that man had. Before the development of major industry, trade was a particularly domestic matter, and the price of purchases was paid directly. If a merchant had to pay a remote provider, it was very difficult.

Movable gold is subject to robbery by thieves who wreak havoc on the roads. By means of a bill of exchange – which the banker used to ask a colleague to pay a certain amount to one of his customers – man was able to solve this problem. When people realized that a legally signed note could represent a certain amount of precious metal, and that it had its advantages but not its disadvantages, they were about to invent the banknote.

Currency peg to gold

John Lau, a famous financier based in France, had unsuccessfully advocated the establishment of the State Bank under the Regency of the Duke of Arléans. In 1716, he founded a private bank. When someone deposited his gold with him, he handed him in return a money order (Assignat) equivalent to the value of the deposited metal. But an alliance between rival banks created panic and forced John Lau to flee, in bankruptcy.

The principle of the State Bank was simple: the bank had to issue notes of equal value to the gold deposited in its treasuries. This system had one drawback. And it is that foreign suppliers wanted the performance to be done in gold. They had no desire to have papers that they could not use in their own country.

Bankers soon realized that they could print banknotes of a value that was significantly higher than the value of the precious metal stored in their bank's basements. The guarantee of the state reassured the most skeptical people.

Shortly thereafter, the state began to make papers in a very large quantity to meet emergency expenses, such as war expenses. Maintaining the principle of gold repayment could have been a disaster. To this end, the State has definitively rejected the possibility of converting their banknotes into gold.

The story of gold and the dollar

On the eve of World War I, the monetary system, in almost all countries, was based on the gold standard. Each country had reserves of this precious metal. Changes in this stockpile inhibited or stimulated country-to-country trade operations.

Therefore, a country that used to import more than it exported, pays the difference in gold in its coffers. By default, its currency becomes weaker in the international market. As a result, the products of his industry or agriculture were cheaper for foreign buyers, and his sales increased. However, the high cost of goods it buys from other countries leads to a decrease in its imports. Thus, his balance of gold increases and the balance returns automatically.

The United States abandoned this system in 1914, returned to it in 1919, and abandoned it again in 1934. After the economic crisis, which began in 1929, the country wanted to stabilize its currency and decided in 1934 that an ounce of gold was equivalent to $35, and that this value would remain constant. Only the Governments of other countries had the right to convert their dollars into gold when they so wished. The United States was so prosperous that owning dollars, for everyone, meant owning gold. Many governments even put this paper currency in their currency reserves.

Collapse of the gold base

However, when the United States began to face financial difficulties, it began to manufacture more banknotes than its metal reserves allowed. This was quickly taken into account, and in the past, at the level of one country, it happened at the international level, and several countries, including France, threatened to convert all the dollars they possessed into gold. Therefore, on August 15, 1971, the U.S. government announced that it would no longer accept the conversion of dollars to it into gold.

Thus, all currencies remained specific to the dollar, but the conversion of different currencies was no longer subject to strict rules. Depending on supply and demand, the value of currencies can change by 4.5% relative to the dollar, which is a system of flexible or floating exchange rates.

In 1976, preliminary planning of an international monetary system was initiated at the Kingston Conference, Jamaica. An international monetary standard called a "common international reserve" has been created. This reserve consists of Special Drawing Rights (DTS), a fictitious currency whose value represents the average price of five major currencies (dollar, mark, franc, yen, pound).

The globalization of the economy has made it impossible to use gold as a monetary standard. In the words of economists, the dollar is permissible despite the fact that the yellow metal, in the eyes of the people, is a symbol of prestige and power.

Advantages and disadvantages of the gold base

Is there anything in the history of humanity that is not necessary for life, which man has given symbolic importance, which has not changed with the passage of time, like what he has given to gold?

In fact, man has not stood on anything as much as on his love for the yellow metal. However, the value of gold does not remain constant. In any case, for the same amount of metal, a price is required that increases the higher the demand, as there are two gold markets, one of which, called the gold parity price market, is determined by the gold value of the national currency, a value determined by the government and accepted by the International Monetary Fund (FMI). The second market is free, created in France in 1948.

As in any market, it is the magnitude of supply and demand that changes the price, as well as the price set in London, every business day, at half past ten in the morning, at the headquarters of the Rothschild Bank.

Therefore, when people buy gold heavily, the prices rise, but if the apprehension is strong, the prices «inflame», in 1960 the price of an ounce of gold reached $ 40, and even reached the price in 1980 to $ 710. Gold hit its highest level in history in 2020, reaching a record high of $2072,<>, due to the economic repercussions of the coronavirus pandemic.

In order to remedy such a rise, in 1961 a "Gold Group" was created, whose members (the United States of America, Great Britain, Federal Germany, France, Italy, Belgium, the Netherlands and Switzerland) had to make part of their reserves common when it was necessary to ensure market stability. However, the group itself seemed ineffective in the face of speculation that followed the devaluation of the pound, and its members decided not to intervene in the free market for gold. All this strongly demonstrates that the price of the precious metal changes dramatically, and that there is no reference value for gold.

Obviously, it is difficult to estimate the mass of gold that has been hoarded for centuries. In cupboards and safes (excluding state reserves). However, the capital employed in gold is constantly losing its value. From 1949 to 1969, for example, gold lost two-thirds of its purchasing power. At the same time, the capacity of variable income values increased by 188%. In the long run, therefore, gold is not a good employment, neither for private individuals, nor for a country that is always a loser, in the event of capital replenishment.