You Want Truly “Sound Money”? A Thought Experiment
One of the great fictions about money is that it is neutral. It isn’t. It’s either designed for the elites or for the citizenry.
Many proclaim a desire for “sound money,” but “backed by X” currencies are not “sound money” unless they can be converted directly into X. Those proposing gold-backed currencies are trying to secure the promise of “sound money” without actually doing the hard part, which is convertibility to the underlying asset.
The only way a currency can be “as good as gold” is if it can be converted to gold. Without a conversion mechanism, the currency isn’t backed by anything but an illusory connection between reserves and the currency being issued.
The only way an oil-backed currency is actually backed by oil is if the currency can be converted into an oil futures contract, i.e. a claim on actual oil. This is what made America’s “gold standard” an actual gold-backed currency: other nations could (and did) demand gold in exchange for their surplus dollars.
As I’ve discussed elsewhere, America’s geopolitical goals required running sustained trade deficits to support our allies’ economies, which left these exporting nations with surplus dollars they could trade for gold. America’s gold reserves were being drained and if the convertibility had been left in place, the reserves would have fallen to zero: with the gold gone, that would have been the end of the gold standard.
Rather than waste our time with illusory “backed by X” schemes, why don’t we cut out the intermediary paper-digital currency and just use gold and silver as money directly in coinage? In other words, if we want truly sound money, then use intrinsically valuable metals as money.
So let’s run a thought experiment on t
Article from LewRockwell
