One of the most traditional forms of money was gold and silver coins. Although this seems like an outdated concept from ancient civilizations, actually, the US struck silver and fractional gold coins less than a century ago for everyday commerce. This was in addition to paper currency. At the time, the US was on the gold standard, so we traded precious metals directly. Even paper dollars represented gold ownership. As a result, inflation was not something we needed to worry about since gold was needed to back fiat currency. Therefore, the US could not merely print dollars unless it was backed. So what happened? Why did the US stop using silver and gold as money? Where do we go from here with inflation at the forefront of everyone’s minds?
Why Did the US Get Off the Gold Standard?
The answer to this question is a bit more of a simple answer than you might think. Although the US was on the gold standard since 1879, bank failures during the Great Depression caused a run to gold. This gold hoarding stalled the economic recovery and made the gold standard difficult to uphold.
After Franklin Delano Roosevelt took office as president in 1933, he established Executive Order 6102. This order forbade banks from distributing gold to people leaving the bank, and outlawed private ownership of gold. This enabled banks to hoard gold so they could inflate the money supply. However, FDR also took note of Great Britain discontinuing the gold standard in 1931.
Back then, this accumulation of gold created a massive supply for banks to fund the M0 money supply. The government held this gold in its reserves for years as the economy recovered, which maintained the gold price at $35 an ounce. This was the case until 1971 when former President Nixon decided to take the US off the gold standard and created fiat currency that was not backed by anything. Three years later, President Gerald Ford authorized Americans to privately own gold bullion once again.
However, the US has not yet returned to any sort of gold standard today. The cash people use today is fiat currency, which has value only because the government says that it does. US coins today are also made from a combination of copper, zinc, and nickel. With the US economy reopening during the pandemic, many people are diving into the cryptocurrency market. However, you can also diversify with gold and you might be able to use gold as money soon, in certain ways.
How to Use Gold as Money Now
Although there are gold bullion coins, even fractional gold coins, these are not meant for use as regular currency. They might have an assigned face value, but the precious metals content is worth more than the face value. That being said, you do still have options if you want to use gold as money today. Trading an entire ounce of gold is probably not feasible. But, rather than worrying about the price of gold per gram, you might consider the Goldbacks, or even branch into PAXG.
What are Goldbacks?
The Goldbacks are not like paper money that represented gold. Actually, Goldbacks are fractional gold coins that are made of real gold. What makes Goldbacks truly significant today is that they are legal US tender. Yes, this means in certain states, you can actually trade real services and goods with fractional gold coins. You don’t even have to worry about the price of gold per gram.
So far, Utah, Nevada, and New Hampshire (soon) allow this form of currency. One Goldback is worth about $3.16, according to its official website. You can trade this in denominations of 1, 5, 10, 25, and 50 Goldbacks.
How is this form of currency legal? Thanks to the Utah Legal Tender Act of 2011, certain gold and silver coins are approved as legal means of commerce. Therefore, you may see certain businesses in these states accepting financial transactions in the form of Goldbacks.
Does this mean the US is going to get back on the gold standard? Not exactly. But, this is the first gold aurum note that can be used as legal tender. The US is still far from accepting gold as money in everyday business again, but it would not be irrational to see Goldbacks becoming legal in every state eventually.
PAXG - Digital Gold as Money
Not everyone is sold on owning and trading physical gold. With concerns about theft and storage, it is perfectly acceptable for an individual to forgo buying gold. However, those who are interested in Bitcoin, Ether, and other cryptocurrencies, might take a keen interest in PAXG.
PAXG is a digital token representing one whole troy ounce of gold considered “London Good Delivery.” If you own PAXG, you also have the right to that gold, and you can trade it in for that physical asset anytime. Because PAXG symbolizes physical gold, its value is directly linked to the live gold price per ounce. However, like the Goldbacks, you do not need to worry about owning one whole ounce of gold. PAXG also trades like fractional gold coins since you can have partial or fractional ownership of these gold bars.
This digital token is traded on the Paxos platform. The Paxos platform is live, so you can trade your gold for fiat currency and other options, instantly. Although you cannot currently trade PAXG like you can use Bitcoin, Paxos indicated on their website that it will be “[...] available on other crypto-asset exchanges, wallets, lending platforms and elsewhere within the crypto ecosystem.” This means you might be able to use crypto gold as currency at some point in the not-so-distant future.
Either way, if you are a crypto investor, you might consider diversifying with PAXG in order to benefit from gold ownership. Since Bitcoin is so volatile, having something pegged to a physical asset can offer you more of a steady hold over your crypto wallet. Plus, inflation cannot affect PAXG because it is linked to gold, not the dollar. Since cryptocurrencies are currently treated as an alternative currency to combat inflation, you can also get this same benefit with PAXG.
Will Gold as Money Make a Comeback?
In conclusion, the US might not revert back to a gold standard, but concerns about inflation are not going to easily go away. More and more people are looking for alternatives to the US dollar, which is why the crypto market has been outperforming many other assets. But, cryptocurrency has many options, and you also do not need to rely only on a volatile market to make a safe haven hedge.
As we continue the economic recovery in the world and modernize the market, gold may revolutionize as well. Goldbacks could become more popular to the point of being accepted in all 50 states. Modern plugins, such as PAXG, may also slowly gain interest and support even with younger investors as time goes on. Perhaps using gold as money could happen again, even if not the way that we used it in the past.