Today we will know how the gold became money
Gold has been used as an element of commercial exchange since the year 700a.C, when the first gold coins were coined and began to be considered objects of sufficient value, to become the basis on which to start a modest but effective economic system. It is surprising how something so old, whose bases were unstable and surely full of unresolved questions, has managed to thrive and remain so for more than 2000 years.
So, in the 21st century, gold as a precious metal remains a very important element for obtaining economic liquidity quickly and easily, while it continues to be used to close and incentivize some of the largest businesses among the world’s major economies.
How gold became paper?
Although, gold in physical condition was difficult to carry always over, especially for those who possessed large quantities. It was then that physical currency began to evolve and give way to paper. At first the only way to use gold or silver for commercial purposes was to go to the goldsmiths to manipulate them and give them the shape of coins, making it much easier to carry and exchange them.
However, this method soon began to have some drawbacks. On the one hand, the coins were too sturdy and heavy, being difficult to carry a large quantity on top, and on the other were the continuous changes of value that these metals suffered. Not everyone had access to the same metals, making it difficult to assign a single value for all currencies, thereby complicating business transactions and limiting access to the most valuable metal to a privileged few.
The solution also came from the goldsmiths, whose workshops began to be used as “banks” where people deposited their metal reserves in exchange for receipts with the value equivalent to the amount of gold or silver that they had stored. In this way, the physical metal began to be replaced by paper money. Something much easier to carry and that set a fair price for every metal. This was the modest and rudimentary principle of the banking system that we continue to use today.
Why the golden window closed?
Every beginning has its end, and for the practice of golden money by window system it also had to be. It was in 1971, during the presidency of Richard Nixon, that the metal storage system that became paper had to be completely shut down. The reason? Corruption, as usual when it comes to large amounts of easy money. It all started when the bankers in charge of converting the physical metal into paper money saw the opportunity to take advantage of the measure and start issuing receipts with a higher value than they actually had.
However, the thing did not stay there, but the problem evolved until it became usual for great personalities of the time, with considerable amounts of gold , started faking their receipts to get more valuable goods for the same amount of metal. It could be said that what we now commonly call “money laundering” began to be practised. Nixon therefore prohibited the physical metal from being put back into circulation and used within the currency exchange system.
That was the first step towards a safer economy, where banks were actually institutions where people could keep their savings legally and transparently.
New laws and regulations on the use of gold
From that first step taken by the American president, the economy changed its course again and sought measures to establish a rigid system, whose basis was always legality and the transfer of funds. To this end, the first central bank was set up in England, the main purpose of which was to store gold and make legal loans to the monarchs of the time.
To prevent gold frauds from continuing, the government passed the first gold law: the Peel’s Bank Act. This law required banks to issue only the amount of paper money proportional to the amount of gold actually held in their reserves. Therefore, still gold in physical format remained key to the evolution of the economy, despite the multiple changes and with an increasingly secondary role, gold as metal remained the basis of the entire financial system.
What do you know about modern gold?
You knew that until the 1970s the price of gold did not exceed $20? It was from the introduction of new measures that the price dance began, going from approximately $30 to the exorbitant sum of $300. The reason for so much rise and fall? Politics and its multiple changes.
The negotiations between countries, the evolution of the economy with the introduction of other determining factors such as oil, made that gold never finished having a stable price. Being in the present also a determining metal that goes up and down in value depending on social and political changes.
Gold can be controlled?
You think gold as a precious metal is only used to make jewelry or high-end furniture? The reality is that although we do not have gold as an essential economic element in our daily life, this metal in its most primitive and natural state, remains key in the functioning and balance of the entire economy. In major economic crises, the country with the most gold remains the one with the most advantage.
Gold has been essential for thousands of years for all humanity, the metal being the one that controlled man and not just the other way around.