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Americans Debating Value of Gold Standard

American Eagle and South African Krugerrand gold bullion is offered for sale at the Chicago Coin Company in Chicago, Illinois in this file photo. Returning to the gold standard is being debated among the world's governments. (Scott Olson/Getty Images)

American Eagle and South African Krugerrand gold bullion is offered for sale at the Chicago Coin Company in Chicago, Illinois in this file photo. Returning to the gold standard is being debated among the world's governments. (Scott Olson/Getty Images)

The re-emergence of the gold standard is hotly debated, because many of the world’s governments have been printing too much paper money, making money worthless over time, according to economists’ and other experts’ opinions. 

Gold as a standard would allow the U.S. government to assign a weight and purity. Purity could range from 100 percent to much less. 

However, not all support a gold standard. 

“Faced with the kind of shock we’ve just experienced, the real price of gold would ‘want’ to rise. But under a gold standard, the nominal price of gold would be fixed, so the only way that could happen would be through a fall in the general price level: deflation,” according to well-known economist Paul Krugman in the Aug. 26 edition of the New York Times. 

A Sept. 11 headline on the Money Morning website suggests that “A New Gold Standard is Just a Dream—for Now.” 

The world is not ready for a gold standard as the circulation of gold increases only by 0.22 percent annually, making it highly deflationary, given the growth of the global population. A second problem is that maintaining a gold standard would be exorbitantly expensive for the world’s central banks and the banking system. 

“It’s pretty unlikely that the U.S. will ever re-adopt the gold standard, both because of the cost and because of the vested interests opposed to it,” according to the Money Morning article. 

Advocating a Parallel Currency

A parallel currency is a second currency, which could be any kind of precious metal, such as gold and silver, or another currency, such as the Euro.

“Since gold can’t be printed, it is the only honest currency that exists. This is why many governments don’t like gold increasing in value against their paper money since it exposes their total incompetence in running their country’s economy,” according to a 2009 report on the Rapid Trends website. 

In an Aug. 2 hearing held by the Subcommittee on Domestic Monetary Policy, U.S. Rep. Ron Paul argued that Americans should have the right to choose a currency, be it gold or any other commodity. 

On the other hand, there are those, including a great number of economists, who believe that a gold standard would not be appropriate for current society because it would be like “trading in an automobile for a horse and buggy,” according to an Aug. 29 article on the Seeking Alpha website. 

There are countries where an ordinary citizen can set up a bank account denominated in silver and can pick up said silver at any time without having to pay taxes. 

In Singapore, ordinary people can set up bank accounts denominated in gold and silver. America’s super rich can store gold or silver in London’s or Singapore’s financial districts, while such transactions would be very difficult for an ordinary U.S. citizen.

Paul suggests that printing money under the quantitative easing policy to stimulate the economy could, in the end, result in hyperinflation, which would be disastrous for ordinary Americans. 

“Should the United States ever face a hyperinflationary crisis, which due to the Fed’s quantitative easing is very possible, the only means of survival would be through the use of parallel currencies,” according to Paul’s testimony, published on the Committee on Financial Services website. 

Legalization of Gold on Its Way

“Over the last 18 months, lawmakers from 13 U.S. states have been busy. Worried about the Federal Reserve and the U.S. dollar on the brink of collapse, they are proposing bills to recognize gold and silver as legal tender,” according to an article on the Lombardi Financial website. 

In March, Gov. Gary Herbert of Utah and the South Carolina legislature each signed a bill allowing the use of gold and silver coins as legal tender. Missouri, Colorado, Montana, Idaho, Indiana, New Hampshire, and Georgia are also deliberating such bills, while there is a bill pending in Washington state that would approve gold coins as legal tender. Virginia’s legislature “passed a bill that will allow the state to mint gold, silver, and platinum coins,” according to the Lombardi Financial article. 

“To have states pass laws to recognize gold and silver as legal tender may seem a bit odd since the federal government already recognizes US silver and gold bullion coins as legal tender,” an entry on the Gold Coins-Silver Bullion website suggests. 

Next …

Relationship Between Currencies and Gold