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The current monetary system
collapses
The current monetary system is dominated by fiat money, i.e. all kinds of money that are made legal tender by a government decree or fiat. The monetary supply via these government-issued currencies that are not backed by a commodity such as gold has literally exploded in recent years.[1] If the monetary supply rises faster than productivity in an economic system and thus relatively more money comes in circulation than additional goods and services can be produced, prices unavoidably have to rise. This situation can be observed around the globe, and fighting this price surge with an ever-increasing speed of additional Fiat money supply obviously is not sustainable. Central banks around the world thus prepare for the point in time, where trust in the issued paper money, which is not backed by commodities, collapses and people demand real values to fulfil their needs regarding a suitable medium of exchange and store of value.
Our wealth should not burden us or make us slaves. Rather, we should be masters of our wealth and use it in a way that serves the good. It should be spent in such a way that it solves problems and leads to happiness, but not to tension or suffering.
What will happen
- Authorities want to replace paper-based money through digital currencies – Central Bank Digital Currencies (CBDCs)[1] and Central Banks buy highest amounts of gold dating back to the year 1950.[2] The latter fact stems amongst other aspects from the insight, that the different CBDCs will be in competition for a leading position as reserve currency.[3] But backing all existing, and not to speak about additional issued, fiat currencies with gold is very unlikely as there is not enough gold to do so.[4]
- In the last years, the biggest buyer of gold has been the central bank of China.[5]
- Historically, gold has always been associated with value.
As Ludwig von Mises, leader of the Austrian school of
economics, states:
Over centuries traders eliminated everything else from among the various articles and commodities used as media of exchange until only the precious metals - gold and silver - remained. All other commodities were eliminated as media of exchange. When I say that the other things were eliminated from being used as money, what I mean is that people in making agreements eliminated them; people in making agreements rejected other things as media of exchange and turned to using only gold and silver; they specified gold and silver in the contracts they made when trading with other parties. Thus we must realize that the evolution to gold and silver money was brought about by private persons. Then silver also disappeared as a medium of exchange in the last centuries and the fact remained that the commodity gold was used as the medium of exchange. "There is nothing easier for
governments to do than to destroy a system of money which is based upon too much confidence in the government".[6]
And further:
But the gold standard has one quality, one virtue; it is that gold cannot be printed, and that gold cannot be produced in a cheaper way by any governmental committee, institution, office, international office, or so on. This is the only justification for the gold standard.[7] - The first coins made from a natural alloy of silver and gold called Elektron were minted in Ionia and Lydia 7 centuries before Christ and the first pure gold coins were minted under King Kroisis in mid-6th-century BC.[8]
- Gold backed-coins were in circulation since then, and even
Jesus acknowledged their usage by governments and rulers: In
Matthew 22 Jesus said:
Show me the coin used for paying the tax.” They brought him a denarius, and he asked them, “Whose image is this? And whose inscription?” “Caesar’s,” they replied. Then he said to them, “So give back to Caesar what is Caesar’s, and to God what is God’s.” - The biggest break in the development of gold-backed currencies happened in 1971, when US President Richard Nixon suspended the convertibility of the dollar into gold (or other reserve assets), ordering the gold window to be closed such that foreign governments could no longer exchange their dollars for gold, paper money. [9]
- The current supply of gold is roughly equal the size of 4 Olympic swimming pools or ca. 200.000 tons, with approx. 2.500 tons being mined yearly. But the overall existing amount of gold is limited, and when the mining speed is kept at current rates it will only be possible to mine gold until the year 2050 by when gold mining will become unsustainable.[10] Everyone on earth would not own an ounce of gold if the amount of gold already mined in the world were divided equally between the world's population. This would not be the case even if gold mining were to cease in 2050.
- The price of gold can never fall below production costs for a longer period of time, so this sets a lower bound for its price band. Due to the limited amount of existing gold, it will become harder and harder to mine one ton of it, leading to increased production costs.
- If central banks want to back all their CDBCs with gold there will either be not enough in the world or gold has to become much more expensive then today. As shown in point 2, CBs are already buying large amounts of gold. In the near future, people may even be legally hindered to buy gold or have to deliver their gold possessions to the state by force, as has already happened in the past.[11]
- In the last decade, a new technology has become available, which allows to invest in, store, and transfer gold-backed currencies in a way, which was never possible before. With the advent of Bitcoin, the underlying blockchain technology became popular. Based on the same technology, cryptocurrencies, which are fully backed by gold, have been created recently. They enable a world-spanning digital gold-pegged currency system, which will quickly gain importance over time as classic fiat systems are being replaced by CBDC which lack gold-backing.
