Sean O'Grady: Gold has made a comeback as a de facto world currency

Analysis

It was John Maynard Keynes who condemned the use of gold as money was a "barbarous relic", and it was he as much as anyone who liberated the world from currencies based on gold or, more unusually, silver, convertible by law from paper promises to hard metal on demand.

Since the final break of the US dollar's link with gold in 1971, the world has conducted its commerce on the basis of paper or fiat money, created by governments and, with central banks applying varying degrees of restraint, routinely debased through inflation.

Gold has had its ups and downs, but, long term, it has preserved value better than dollar bills or sterling banknotes. The $2 trillion (£1.2trn) of new money created by the US Federal Reserve since 2008 – and the proportionally larger, in relation to the size of our economy, £200bn "printed" by the Bank of England – was designed to create inflation and prevent deflation when the recession threatened to turn into a slump, with the spectre of falling prices and a rising real value of our enormous debts.

The fear now is that that expansion in money supply will spur uncontrollable inflation, as it did in the 1970s. So, barbarous or not, the return of gold as an effective "store of value" – one of the essential attributes expected of money – should be no surprise in an era of higher inflation. It is a perfectly rational reaction, though gold offers no interest yield and, if you get your timings wrong, can lose your shirt for you.

But it is that overriding fear of the vanishing purchasing power of paper money that has made investors the world over turn to gold once again, as they always have in times of trouble. This has been true in the developing economies of India and China, where gold has traditionally been hoarded and used as an outward expression of wealth, and where they may have more cause than most to distrust the authorities.

Without anyone particularly noticing, gold has made an informal comeback as a de facto world currency. The currency vigilantes of Utah are, if anything, somewhat behind the times. That said, the danger of gold replacing the dollar as the dominant world reserve currency – a de facto gold standard – is remote, but we ought to recall there was a reason why we abandoned it. For gold depresses economies, forces wage cuts and leads to bouts of mass unemployment, political instability and, yes, wars.

As the American politician William Jennings Bryan put it at the 1896 Democratic convention: "Having behind us the producing masses of this nation and the world, supported by the commercial interests and the toilers everywhere, we will answer their demand for a gold standard by saying: 'You shall not crucify mankind upon a cross of gold'." He was never popular in Utah, however.

Arts and Entertainment
Banksy's 'The Girl with the Pierced Eardrum' in Bristol
art'Girl with the Pierced Eardrum' followed hoax reports artist had been arrested and unveiled
Life and Style
tech

Board creates magnetic field to achieve lift

Voices
Stephanie first after her public appearance as a woman at Rad Fest 2014
voices

Arts and Entertainment
James Blunt's debut album Back to Bedlam shot him to fame in 2004
music

Singer says the track was 'force-fed down people's throats'

PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
News
ebooksAn unforgettable anthology of contemporary reportage
News
news

Endangered species spotted in a creek in the Qinling mountains

News
peopleJust weeks after he created dress for Alamuddin-Clooney wedding
Life and Style
A street vendor in Mexico City sells Dorilocos, which are topped with carrot, jimaca, cucumber, peanuts, pork rinds, spices and hot sauce
food + drink

Trend which requires crisps, a fork and a strong stomach is sweeping Mexico's streets

Arts and Entertainment
George Lucas poses with a group of Star Wars-inspired Disney characters at Disney's Hollywood Studios in 2010
films

George Lucas criticises the major Hollywood film studios

Sport
football West Brom vs Man Utd match report: Blind grabs point, but away form a problem for Van Gaal
Arts and Entertainment
Leonardo DiCaprio talks during the press conference for the film
films

Film follows park rangers in the Congo

Arts and Entertainment
Gotham is coming to UK shores this autumn
tvGotham, episode 2, review
News
i100
Sport
Adel Taraabt in action for QPR against West Ham earlier this month
footballQPR boss says midfielder is 'not fit to play football'
News
First woman: Valentina Tereshkova
peopleNASA guinea pig Kate Greene thinks it might fly
Voices
Chris Grayling, Justice Secretary: 'There are pressures which we are facing but there is not a crisis'
voices

Does Chris Grayling realise what a vague concept he is dealing with?

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Systems and Network Administrator

Negotiable: Randstad Education Leicester: We are recruiting for a Systems and ...

English Teacher

£120 - £140 per day: Randstad Education Group: English as an Additional Langua...

Nursery assistants required in Cambridgeshire

£10000 - £15000 per annum: Randstad Education Cambridge: Nursery assistants re...

History Teacher

£60 - £65 per day: Randstad Education Liverpool: Job opportunities for Seconda...

Day In a Page

Two super-sized ships have cruised into British waters, but how big can these behemoths get?

Super-sized ships: How big can they get?

Two of the largest vessels in the world cruised into UK waters last week
British doctors on brink of 'cure' for paralysis with spinal cord treatment

British doctors on brink of cure for paralysis

Sufferers can now be offered the possibility of cure thanks to a revolutionary implant of regenerative cells
Let's talk about loss

We need to talk about loss

Secrecy and silence surround stillbirth
Will there be an all-female mission to Mars?

Will there be an all-female mission to Mars?

Women may be better suited to space travel than men are
Oscar Pistorius sentencing: The athlete's wealth and notoriety have provoked a long overdue debate on South African prisons

'They poured water on, then electrified me...'

If Oscar Pistorius is sent to jail, his experience will not be that of other inmates
James Wharton: The former Guard now fighting discrimination against gay soldiers

The former Guard now fighting discrimination against gay soldiers

Life after the Army has brought new battles for the LGBT activist James Wharton
Ebola in the US: Panic over the virus threatens to infect President Obama's midterms

Panic over Ebola threatens to infect the midterms

Just one person has died, yet November's elections may be affected by what Republicans call 'Obama's Katrina', says Rupert Cornwell
Premier League coaches join the RSC to swap the tricks of their trades

Darling, you were fabulous! But offside...

Premier League coaches are joining the RSC to learn acting skills, and in turn they will teach its actors to play football. Nick Clark finds out why
How to dress with authority: Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear

How to dress with authority

Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear
New book on Joy Division's Ian Curtis sheds new light on the life of the late singer

New book on Ian Curtis sheds fresh light on the life of the late singer

'Joy Division were making art... Ian was for real' says author Jon Savage
Sean Harris: A rare interview with British acting's secret weapon

Sean Harris: A rare interview with British acting's secret weapon

The Bafta-winner talks Hollywood, being branded a psycho, and how Barbra Streisand is his true inspiration
Tim Minchin, interview: The musician, comedian and world's favourite ginger is on scorching form

Tim Minchin interview

For a no-holds-barred comedian who is scathing about woolly thinking and oppressive religiosity, he is surprisingly gentle in person
Boris Johnson's boozing won't win the puritan vote

Boris's boozing won't win the puritan vote

Many of us Brits still disapprove of conspicuous consumption – it's the way we were raised, says DJ Taylor
Ash frontman Tim Wheeler reveals how he came to terms with his father's dementia

Tim Wheeler: Alzheimer's, memories and my dad

Wheeler's dad suffered from Alzheimer's for three years. When he died, there was only one way the Ash frontman knew how to respond: with a heartfelt solo album