Replies

V1:
"What happens to the currency if a technological advance creates a cheap method for extracting gold? Or if there is a huge gold strike?"
j:
"You have to look at the current above ground stockpile of gold. Current production never seems to increse the stockpile more than about a percent per year. Gold would have to be mined at an incredible rate just to cause a noticeable inflation, let alone a massive devaluation."
False. Such statements are based on the figure of all the gold ever mined. A lot of that gold has been lost to industrial uses. More is locked up in historical artifacts and family heirlooms that will likely never be a part of the bullion market. The total amount of gold in world markets, which includes bullion (and 'monetary jewelry' used in some cultures) in both private and government hands is a little over 70,000 metric tons. There are enormous amounts of gold in the Earth's crust, and a heck of a lot more in the solar system. Asteroid mining is a few decades away, but no one knows what we'll find. It is by no means unimaginable that technology or a massive gold strike could result in a vast increase in the world gold supply, or any other precious metal.

But the main point is that gold is a commodity, and a small increase in supply can easily crash a commodity market. It happens all the time with oil. Even the [i]fear[/i] of a restriction or increase in supply causes huge price variations. And this is supposed to be the 'solid basis' for a currency? History shows that is pure fantasy.

The increase in world gold supply resulting from the California gold rush in 1849 had only a very minor impact on American money supply. In 1853, the silver value of dollars and smaller coins were reduced somewhat to reflect a change in the worldwide valuation of gold vis a vis silver. Ironically, a small, but notorious loss of gold supply (the sinking of the SS Central America) actually had a greater impact on the US economy -- at least some credit the loss of this ship with the panic of 1857.

When the world employed a bimetallic standard (gold & silver) between 1815 and 1914, the exchange rate between nations was unbelievably stable, which dramatically promoted the development of world trade. In fact, the Australian, South African, and Yukon gold rushes had no impact on foreign exchange rates.

Since World War I, and particularly since the collapse of Bretton Woods, businesses involved in international trade have been forced to consider currency fluctuations in determining the "bottom line" success or failure of their exchanges of product or services for currency.

"But the main point is that gold is a commodity, and a small increase in supply can easily crash a commodity market. It happens all the time with oil. Even the [i]fear[/i] of a restriction or increase in supply causes huge price variations. And this is supposed to be the 'solid basis' for a currency? History shows that is pure fantasy."

I AGREE But the main point is that PAPER MONEY is a commodity, and a small increase in supply can easily crash a commodity market. It happens all the time with oil AND IN COUNTRIES THAT PRACTICE THEIR VERSION OF MONETARY POLICY Even the [i]fear[/i] of a restriction or increase in supply causes huge price variations. And this is supposed to be the 'solid basis' for a currency? History shows that is pure fantasy. <br