Why MONEY BACKED BY GOLD?

Money is not a metal coin or a piece of printed paper. These are only symbols. But they do represent something real.

Money is backed by large stores of precious metal that is held by the government that issues the money. The standard of measurement for the value of money that is widely used throughout the civilized world is gold and silver. They are scarce enough to retain their value, yet plentiful enough to meet the demands of the marketplace.

In other words, the paper and coins that a government issued as “money” was accepted as having a certain value because there were supplies of gold and silver backing up that money.

In 1821, Great Britain made monometalism (one metal) the basis of its monetary system. Gold was adopted as its official currency. By 1914 gold was the measuring stick for almost all the currencies of the world. By having one standard of value, countries were able to trade more easily with each other. Dollars from the United States, francs from France, and marks from Germany all had a set value in gold. This is known as the gold standard.

By 1933 most countries had gone off the gold standard. But many currencies, including that of the United States, are still based on a set price of gold. And gold is still very important in international trade. Governments buy and sell gold bars known as bullion. Part of the gold is used to pay off international debts, and part of it is stored. The stored gold is called a “reserve.”

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